Taking Stock

I've been reporting on stock market activity on my FaceBook page every business day.  I thought yesterday's events warranted a more permanent record, so I'm copying it here.  Today is Good Friday, and the markets are closed.

Thursday, April 9, 2020

Green arrow up
DJI30 Index at the close —- 23,719.37 +285.80 (+1.22%)

The Index opened at 23691, 251 points above yesterday’s close. The high was 24009, and it was approached at 10:00, 1:00 and 1:30. Round number resistance bent, but did not break. The next move was a drop of 500 points to 23504 just before 3:00, followed by a choppy ride into the close. The last move of the day was a gyrating drop of 90 points in the last 25 minutes.

This is a clearly up day, with the hi, lo and close all higher than yesterday’s.

Today’s good news and bad news:

Good - Fed to provide $2.3 trillion to prop up the economy - just what a liquidity fueled, significantly over-valued market needs. 

Covid-19 cases reported to be slowing. We’ll see how well that holds up given, frex - Arkansas and Trump’s great desire to reopen the economy.

Bad - Horrible unemployment numbers, exceeding expectations with over 6 million new claims on top of the over 10 million from the last 2 weeks.
Teenagers spending is off 13% YoY.
Nearly 1/3 of tenants didn’t pay rent this month.

All of this is from the Yahoo Finance news items listed below the stock chart.

 Today’s lo to hi span was 505 points, the lowest since 409 on 2/20. That looked like an outlier at the time, but got swamped from the 24th on. For context, the ten day average then was 207 points. On April Fool’s Day it was 1039. Now it’s 778.

Today’s moves would have looked wildly disjoint as recently as the middle of February. But now it’s the tamest day we’ve seen in 6 weeks. Is this some sort of new complacency? This market is remarkably resilient. And I find that to be frightening.

The breaking news is that with the markets closed tomorrow for Good Friday, the SP500 had it’s best week in 46 years. The Nasdaq had it’s best week since 2008. Hmmm - what happened after that? For the DJI30, it was the best week in 2 weeks! Go figure.



While we’re at it, let’s have a look back 46 years ago to 1974. Context matters. I can’t quickly find S&P data for 1974, but DJI30 should be good enough. The index averaged 4764 in Dec.1973 and 3071 in December 1974, a 46% loss. So that big gain happened in the midst of a brutal bear market and clearly didn’t last long.

But wait - there’s more. The DJI topped at 7785 in Dec ’65 and bottomed at 2145 in July ’82 - a bone crushing 73% decline that took 17 years to play out. So the ’74 bear market was just an episode in a much longer devastating trend that nobody seems to remember today. Here's a link to the chart, and you can play around with the dates, if you’re so inclined.


Historically, most of the largest short term gains - covering a day or a week - have occurred during bear market rallies. These things treacherously offer false hope. I believe this financial exuberance is irrational and the pandemic optimism will backfire horribly. I would love to be wrong.


Stay safe out there. Or, better yet, just stay home.

NYSE Internals
A/D = 2584/422 = 6.12
A/D Vol = 3.52
New Hi/Lo = 12/2 = 6.00

Notes on the graph --

The fine green, blue and red lines indicate daily hi, close and lo values, respectively.
The heavy green line at the top is a projection of the all-time high of Feb12.
The down-slanting channel contains the drop from the all-time high.  It was violated this week, but i kept it for reference.
The horizontal channel indicates sideways motion.  It looked like it was in effect since the bottom on Mar 23. Possibly obsolete now.
The falling blue line is the 233 day EMA.

Corporate Net Cash Flow - Pt 2

In comments, Art suggests looking at CNCF divided by the GDP Deflator to strip out inflation, and provides a link to the relevant FRED graph.   I put trend channels on it, 'cuz - well, that's what I do.

The original post WW II (Golden Age) trend is indicated with a green channel.  The more recent trend, with significantly lower slope, is in the purple channel.  For the green channel, the orange midline (eyeballed) is included.

This begs the question: when did the trend actually change?  When you have a time series that bumps and wiggles along, it's tough to say for sure.  One could argue that the channel shift started with the the last touch to the top of the green channel in the mid 60's, since that is where I've drawn the beginning of the new channel.  But, the new channel can often be extrapolated back into the previous channel.  So, though that interpretation can be visually compelling, it isn't necessarily correct.  One way to get a handle on trend changes is to look at the standard deviation envelope, as I did here for the Federal Funds Rate.  I haven't done that here.  I don't have the time right now, and probably lack the motivation to go at it that way.

Another approach is to see where the data stops exceeding the channel midline.  I'm not going to suggest any kind of a rule, but I have noticed that stock market trends tend to fail at the midline rather than the top line of the trend channel.  The last touch of the midline occurred just before the 1980 recession.  The first local peak to fall short of the midline is the double peak in the mid 80's.  Soon after, the data line pierces the bottom of the green channel for the first time.

I'm going to suggest that the trend change is located at the midline failurein the early 1980's.  But if you would  prefer a different milestone, I'm not going to argue strenuously against it.  I would like to get your line of reasoning though.  I think mine is rational, and consistent with other economic phenomena.  What do you think?

Any way you slice it, though, policy over the last 30 (at least) years have not been as good for businesses as were the policies of the previous post-war period.  My take-away is that Republican policies of low taxation, deregulation, lax enforcement, union busting, and job outsourcing have simply been bad for the country and bad for the economy - bad in every way.  Even the corporations are doing less well in this neoliberal period than they did when Keynesian economics informed policy.

I infer from this that Republican policy is based on ideology, not on facts or data.  But, of course, this is no surprise.

Plutocracy Now

Just discovered this post at Mother Jones, and borrowed their title.  The post has a series of graphs demonstrating the enormous wealth inequality in this country, and how the super-wealthy have confiscated the vast majority of all national wealth generated over the past few decades.

The one showing Share of Federal Tax Revenues  almost looks as if it were lifted directly from a post at this blog from February - even the color scheme is the same.  Well, it's not quite identical- theirs has a shorter time span.  But it sure caught my eye.

Anyway, you should go check it out.  If you've been paying attention, you won't be surprised.

H/T to Randi Rhodes.

Republicans - All Wrong, All The Time, Pt . 25 -- Another Look at Federal Budgets and GDP

In comments, Jerry asked about showing debt and revenue together.  Here it is, and more, as percentages of GDP.

Federal Receipts are shown in green, expenditures in yellow.  The line with blue and red segments is the net, with Red indicating the terms of Rethug Presidents, and blue indicating Dems.  The choppy brown line is year over year nominal GDP growth, also as a percentage.  Note how it trends generally upward to the maximum of 13.5% in 1977, and downward after.  The only pause in the decline is during the Clinton administration.

During the Post-WW II Golden Age deficits were small and transitory.  Since hitting a minimum of 0.4% of GDP in 1974, it's been (almost) all deficits all the time.  And this despite the fact that expenses/GDP were generally shrinking - albeit slowly at first - after the 1983 maximum of 23.5%.   Nominal GDP growth was exceptional in those days - 6.7% in 1983 and 11.7% in 1984.  Of course that was coming out of the nasty 80-81 recession, and boosted by the greatest defects ever (until now), outside of a World War.

And look what Clinton did - by reducing spending and raising revenues, he restored consistent GDP growth and balanced the budget.

I'm a long way from being a deficit hawk, and I believe some of Clinton's cuts were highly questionable.  But the all-too-temporary restoration of fiscal sanity and level of economic success during his administration are both remarkable and unique.

Even Carter - who made a lot of mistakes - was able to slightly narrow the deficit gap.

In stark contrast - every Rethug administration, even Eisenhower's, caused a net decrease in revenues/GDP.

Meanwhile, every Rethug administration after Eisenhower either raised or held expenses above 20% of GDP.

To quote Jerry:  " . . . while republicans reduce government revenue, they do not reduce government spending and thus grow larger deficits.    I call that fiscal irresponsibility."

And he's right.  

While this paints a picture of grotesque Rethug fiscal irresponsibility - to a point that I would call traitorous - it's important to not get too hung up on raw budget numbers.  Not all spending is created equally, nor is all revenue.  My assessment is domestic social program spending = good, imperialist expansion spending = bad. I've already shown how the spending pattern changed post 1980-ish. 

Someday I guess I'll have to take a closer look at revenue sources.
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One More Big Difference

Here's Krugman:

Some have asked if there aren’t conservative sites I read regularly. Well, no. I will read anything I’ve been informed about that’s either interesting or revealing; but I don’t know of any economics or politics sites on that side that regularly provide analysis or information I need to take seriously. I know we’re supposed to pretend that both sides always have a point; but the truth is that most of the time they don’t. The parties are not equally irresponsible; Rachel Maddow isn’t Glenn Beck; and a conservative blog, almost by definition, is a blog written by someone who chooses not to notice that asymmetry. And life is short.

Well said, Professor.

But the rational progressive vs irresponsible right is not the difference I mean.

Click Krugman's embedded link on you'll find a graph of federal debt as a fraction of GDP.  This is striking.  From the end of WW II until about the beginning of the Ford admin, debt/GDP shrank from almost 1.1 to about 0.25.  It essentially doubled to about 0.49 under Reagan and Bush 1.  Clinton brought it down to about 0.33.  I'm surprised to see it didn't grown much through most of the Shrub admin. Then it went vertical through the Great Recession.

The Rethugs have been guilty of grotesque fiscal irresponsibility since Reagan.  Clinton, for all his imperfections, was a far better steward of the nation's wealth and resources than any president since Johnson.

But we all knew that, didn't we. 

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Still More Major Shifts, Circa 1980

Over at Illusion of Prosperity, Stagflationary Mark posted a couple of really interesting graphs, bringing up two points.

1) It's great to have people digging into things that never even occurred to me - not only a learning experience, but unexpected help. 

2) Here is more evidence of deliberate behavior that has contributed to the major economic shifts that happened within a few years of 1980.

Here's a look at the ratio of dividends paid to stockholders by corporations to wages paid to the workforce.

 

The list of uses for corporate capital is pretty short: investment (in a very broad sense) or distribution. Voluntary distribution avenues include wages and dividends.   Since a stark inflection point in 1976, the dividend to wage ratio has tripled.  If you'd rather consider a long average as your launch pad, that value would be under 5%, so the ratio on that basis has more than doubled.    At a detail level, the decline from 1966 to 1976 (coincidentally, most of the peak inflation period) looks significant.  The ratio has faltered a bit recently, during the economic downturn.  Whether this constitutes a turning point or just a rest stop on the way up is yet to be determined.  (For a no-prize contest, see if you can Elliott-wave label the advance.)

For now, I'll leave it to the reader's imagination to decide what this might mean in terms of wealth disparity and the potential for resource misallocation.

Here's a look at the balance imbalance of trade.

I agree that trade is a good thing.  But good things should be done properly, and in the right proportion.  That was the case with the trade balance for many years - up to an inflection point that is a bit later on this graph - 1984 - but no more difficult to discern.  Before then, the trade balance was so close to parity, you'd almost think it might have been planned that way.  Since then, it's been up-up-and-away, with only a pause in the 90's.  This probably resulted from the '91 recession, but the trajectory was slowed - despite NAFTA - for most of the Clinton admistration.  Again, we see a hint of a possible direction change at the end.   We sure do live in interesting times.

While it's possible that the two graphed items are unconnected phenomena, I have tendency to find interconnectedness in everything (when I can get away with it.)  Not necessarily a straight line, but Mark connects the dots like this:

Higher Trade Deficit -> Higher Unemployment -> Downward Wage Pressure

It's at least plausible.  He also found an article relating trade balance to unemployment, with this statement.

We find a 60 to 72% correlation between the balance of a country’s trade and its overall Unemployment Rate. That is, countries with Trade surplus have lower Unemployment Rates while countries with Trade deficits tend to have higher unemployment.

That's pretty impressive correlation, and lends a lot of credence to the idea that we have been exporting jobs - to our detriment.  And it looks like a policy-driven result.
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Accidental Keynesians

Mike Kimel posted the following graph (see below) at the Presimatrics Blog (reposted at A.B.) by way of a 2nd order critique of Tyler Cowan's e-book THE GREAT STAGNATION, and first order critique of commentary by Cowan's blogging partner Alex Tabarrok.

The graph shows, instead of a data trace, two types of behavior.  The gray bands indicate times when government policies, whether by design or not, were consistent with a Keynesian economic approach.  The turquoise bands indicate times when government policies were inconsistent with a Keynesian approach.

Let's review what this means.  Here's Mike:

The basic Keynesian idea is this: economic downturns (and meltdowns) can occur and/or be prolonged and worsened when the private sector becomes worried and cuts back. In those circumstances, the government should step in and buy things, lots and lots of things, replacing the shrunken private sector demand. Once the economy picks up again, the government should cut back on its spending and start saving up money, first to pay for its recent spending bout and second to have cash in hand to cover its next necessary spending bout.

Put another way – a government thinking along Keynesian lines will tend to run a deficit when real private sector spending falls below some prior highwater mark. It will run a surplus in years real spending exceeds prior real private sector spending. There may, of course, be exceptions in any given year, but a Keynesian government will generally follow that sort of behavior. A government that runs a deficit when real private sector spending is rising, or runs a surplus when real private sector spending is falling, and behaves this way in general is most definitely not operating under Keynesian principles. 

And here's his graph. (Click to enlarge.)

Remember - gray means Keynesian, turquoise means non-Keynesian.   It's worth emphasizing that this chart says little to nothing about the intent of an administration to follow Keynes, or not.  (Though not following appears to be considerably more deliberate than following - at least since the '70's.*)   It only reflects the actual results, as described in Mike's text above.  For example, I have no reason to believe that Ike was particularly Keynesian, or that Bush Sr. had a short-term economic epiphany in 1991.  Nor, for that matter, that the B. Hoover Obama administration has decided to "step in and buy things, lots and lots of things, replacing the shrunken private sector demand."

But, irrespective of intent, it's results that count - and that is what is being indicated here.

Given all that, let's have another look at the graph, in the context of  THE GREAT STAGNATION, which was Mike's point in presenting it.  What we see is that from the beginning of FDR's administration (in fairness, from the previous year, 1931) until (an arbitrarily selected) 1975 Keynesian policies were followed 34 of 44 years, or 77% of the time.  From 1976 through 2009 (end of the data set) non-Keynesian policies were followed  25 out of 33 years, or 76% of the time.

The symmetry is pretty remarkable, but also pretty misleading.  Pick a different inflection point, and the ratios will skew.  More importantly, one thing this approach does not address is the magnitude of the Keynesian policy.  As the last couple of years have shown, half-hearted and underfunded stimulus might help a bit, but it's not going to get at the core of an aggregate demand shortfall problem.   (And, sadly, plays into the hands of the Keynes denialists like Tabarrok.)  Also, deficits resulting from reduced revenues - whether induced by tax cuts or depressed tax reciepts in a downturn - have little to no stimulative power.  Further, as alluded to above, wandering across the border into Keynesian territory for a single year - as Poppy did in '91 - means nothing.  He was running serial deficits anyway, and the recession incidentally provided the other requirement: that the private sectors cut back.

Mike's point is that "Tabarrok is wrong – wrong that Keynesian economics hasn’t been tried, and wrong that it hasn’t worked. And Cowen, it turns out, is wrong about exactly the same thing in his book."

My point is - hey look - here is another example of something that changed at the end of the post WW II golden age, and led into the Great Stagnation.  The fact that the Keynesian period included the golden age, and the non-Keynesian period defines The Great Stagnation is, of course, a mere coincidence.

Afterthought:  Tabarrak's post (linked above) is sloppy, incoherent, and obviously ideologically motivated.  In all honesty, it strikes me as idiotic bullshit motivated by malicious intent.  Posts by Scott Sumner in comments are - seriously - even worse.  The Krugman derangement syndrome Sumner displays is really quite depressing.   And these guys are highly respected economists.

* Afterthougth 2:  OTOH, the beginning of the New Deal was less Keynesian than a scattershot approach to something - anything - that might help.  Programs like the CCC and WPA were probably motivated more by social than economic considerations.  (I'm speculating here - though I'm sure this answer is available, I don't have time at the moment to go find it.)  At any rate, Keynes' General Theory wasn't published until 1936, and I'm pretty sure the FDR administration did not  have an inside track to Keynes' unpublished thoughts in 1932.
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Change Notice

I don't know if you've noticed, but almost any economic measure you can think of made a significant change in momentum or direction within a few years of 1980.

Here is a list of what I've looked at so far.

The breakdown of federal tax receipt sources among individuals, corporations, and FICA.

Growth rate of Social Security collections and year end total assets.

Rate of year-over year change in total U.S. payroll.

Growth in real disposable income per capita.

Decoupling of GDP/family from median family income.

Decoupling of flexible and sticky inflation rates.

Productivity growth.
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Growth rate of non-defense related government spending - both federal and state and local.

Yield on 10-Year Treasury Notes.

Relative growth rates of GDP and public debt.

Stock Market evaluation.

Correlation between deficits and inflation evaporates.

GDP growth plain or per capita.


Update:  This post will be updated as new, relevant information is dicovered.

Things found in other places:

Krugman On the NeoKeynesian - Neoclassical split.

Mark on wages and trade.

Mike Kimel on Accidental Keynesians.

Krugman on Debt/GDP
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 Up

Federal Government Tax Reciepts

I'll start off with the H/T's, to Jerry Critter who asked a probing question in comments,  to ifthethunderdontgetya, in Comments at SoBe, who linked to Thers at Whiskey Fire, who linked to an actual NEWS ITEM at the Guardian UK, because you can't get real news coverage from the corporate controlled (the importance of this will soon become clear!) U.S Media.

Now, back to regularly scheduled programming - focused on Federal Tax Receipts.  Where do you think they come from?  I'll just give it away:  Personal Income Taxes, Corporate Income Taxes and FICA (the payroll tax: you know that hyper-regressive flat tax - nominally for Social Security and Medicare - with a ceiling, and from which there are no exemptions nor deductions.)  Note: Other sources of income - excise taxes, and other miscellaneous revenues are not included in this analysis, and are excluded form the totals.

OK.  That was easy.  This one is not.  How much of Federal Taxes do you think comes from each source?

Oooh.  Toughie.  I suspect you will be surprised.  I sure was   The White House Office of Management and Budget is a Storehouse of useful information - including the answer to this vexing question.

Here is a graph showing the log of tax receipts from these sources, since 1934.  Individual Taxes in Blue, FICA in Yellow, and Corporate in Red.   This is on a log scale.  The upside: constant growth presents a straight line.  The downside: differences on that scale are really hard to assimilate.

What we can see here is that there was a time in the late 30's when receipts from corporate taxes and personal taxes were about equal.  It was even a 3-way near-tie with FICA for a couple of years. After that, corporate taxes steadily declined for decades as a portion of the total.    (The spike down in the data between 1976 and 1977 is due to a separately tabulated calendar quarter in the tables.)

Here's  a close up of the last couple decades, on a linear scale.

Imagine what the size of the deficit would be without FICA!  Ponder the meaning of these lines at a time when corporate profits are at record highs, and unemployment levels are at record highs!

Now, lets look at the data in a totally different way, to put all this in perspective.  Here, each source is presented as a percentage of the total Federal Tax Receipts.

 

Can't tell you exactly what I might have expected, but it sure as hell wasn't this.   Pick your inflection point - either '77 or '84 will do.  Since 1977, the percentage of the total paid by corporations has wobbled around a bit, but averaged 11% of the total.   The percentage coming from personal income tax has been 50%.  Obviously, the amount contributed by FICA is 39%.  Let's have a look at trends since 1977. 

The corporate tax trend is basically flat at 11%. The contribution from individual taxes is actually at a slight decline.  Meanwhile the trend for contribution from FICA has steadily increased for well over 30 years!

Are you as shocked as I am?

Here, to put the perspective in perspective, is a look at total receipts, on a log scale. 

I've placed a couple of best fine lines, a blue one through the entire data set, and a red one through the period 1958 to 2000, which seems a little more regular than the entire set.  At the far end, we had the Great Depression and WW II.  At the near end we had Bush tax cuts, Bush wars, an the ensuing Great Recession. Surprisingly, the red line has a slightly lower slope than the blue line.  Not surprisingly, total receipts have been close to flat for the last decade, as the Bush tax policies have succeeded in starving the government.

General observations:

1)  During the post WW II golden age, the corporate contribution to total tax receipts, though continually declining, was typically far greater than during The Great Stagnation - the period since roughly 1980.
2)  The FICA contribution to the total, despite a break point to a lower slope circa. 1980, has grown steadily since WWII.  It is now virtually tied with personal income tax for the biggest contribution chunk.
3) Since the turn of the century, tax cuts and a stagnating economy have caused a huge gap in tax receipts.  Grover Norquist's plan to destroy government by starvation is working like a charm - at the Federal, State, and local levels.
4) Not shown here, but obvious if you think about it or look for the data, is the decline the growth in government spending, at all levels - for everything except defense - since 1980.

If, like Norquist, you want life without government, take a look a Somalia.  Or dig out A Distant Mirror by Barbara Tuchman and see what life in Europe was like in the 14th Century - a time when society deteriorated, there was little or no effective government, and roving bands of thugs terrorized peasants, kings, and even the Pope.

Because the Rethug plan, in thrall to the Kochroaches, is to take us back to feudalism.

If we will allow it.
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A Different Look at Social Security

All the talk you might hear about Social Security financial problems and federal budget busting is lies and drivel - aka, BULL SHIT.  Let's have a look at SS funding for a different reason.

Here is some detail on the SS premium withheld from pay, from Money Zine.

Generally, FICA taxes are collected at a rate of 7.65% on gross earnings - earnings before any deductions. The breakdown of FICA is 6.2% for Social Security (Old-Age, Survivors, and Disability Insurance or OASDI) and 1.45% for Medicare.  The following table shows the FICA limits for 2005 through 2011:

2011 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65% (see note below)
• Social Security Limit = $106,800 
• Maximum Social Security Contribution = $6,621.60 (employer) / $4485.60 (employee)

Note:  In 2011, the FICA tax rate for employees was lowered to 5.65%.  The employer tax rate remained unchanged, while the Social Security rate for employees was lowered to 4.20%.

2010 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Limit = $106,800
• Maximum Social Security Contribution = $6,621.60

2009 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Limit = $106,800
• Maximum Social Security Contribution = $6,621.60

2008 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Limit = $102,000
• Maximum Social Security Contribution = $6,324.00

2007 FICA Tax and Social Security Limits

• * FICA Tax Rate = 7.65%
• Social Security Limit = $97,500
• Maximum Social Security Contribution = $6,045.00

2006 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Earnings Limit = $94,200
• Maximum Social Security Contribution = $5,840.40

2005 FICA Tax and Social Security Limits

• FICA Tax Rate = 7.65%
• Social Security Earnings Limit = $90,000
• Maximum Social Security Contribution = $5,580.00

 At first, I wasn't going to pull such a long quote, but the information illustrates how the funding base increased through 2009, leveled, and now has been cut.  Many economists are enthused by the extra $2146 this will put into the pocket of whoever is making $106,800, and up - proportionally less for those who make less.  Again, I call BULL SHIT!  This will cause underfunding of the SS trust, and give ammo to those who claim SS is unsound and want to blow it up.  Big, big mistake.  It would have been far, far better to increase the dole in some other way for those at the low economic end of the spectrum.  But that is not anybody's goal these days.

Here is a look at total FICA collections per year from 1957 on.  The hook at the end is rather disturbing.  (Vide supra.)  Other than that, it's an exponential looking line, and those are hard for the human eye and brain to suss - at least for this aging, bifocal-laden human.  Let's try a log scale.

I'll over-state the obvious again, since it's central to my main point: a log scale presents a steady rate of growth as a straight line.  What we have here is clearly two different realms, with two different growth rates.  Each realm has a best-fit straight line superimposed.  Raising the amount collected per earner in the most recent years has not even maintained the slower growth rate of recent decades.  I picked a break point of 1984.  Your eyes might wiggle it around a bit differently, but that is a second order detail, at best.


Here is a close-up of recent history.

It's no surprise that the Clinton era was above trend, and the W regime pretty much defines the trend since Reagan.  Receipts for '08-9 are not just below trend, but flat, due to the recession.  In 2010 we have only actual decline in the data set.

What does this tell you about the state of the American worker?  Remember, the collection base went up every year through '09.

Here's a look at what a program in trouble - and then not -  looks like.  The plot is log of Total Fund Assets at the end of the year.

It looks as if the fund - for whatever reason - was not on a sound actuarial basis through the 60's and 70's - despite robust growth in collections.  During the Reagan administration, this was addressed, and the fund has grown every year since - even through 2010, with receipts stagnating.

Slower year over year growth in receipts since 1984 saved the program.  It will take someone with more knowledge than I have to explain that conundrum.

But my main point is that - at least through 2010 - total FICA receipts are an indirect indication of how the American worker is faring.  It's clear that since around 1984, he hasn't been faring very well.

Data through '09.
Data for '10.
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The Great Schism

I've decided to separate photo and poetry memes and some other types of light-hearted endeavors off into a different blog.

If you come here for heavy-handed politic rants, economic speculation or snark, you might not notice the change.

If you're after the other stuff, it will be linked up where it's always been, and you can get to it from there.

If you're a friend who prefers to come in the front door, write and I'll give you the new address.  I am not enabling RSS feeds for the new location.  Nor do I want to have it available to anyone who happens to stumble by.  Alas, there are wolves and dragons out there.
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Total Payroll Change

A big H/T to Stagflationary Mark at Illusion of Prosperity, my newest thought-food emporium.

Mark illustrates the change history of total payroll in the U.S. and that made me want to do the same thing.  Here's a look at year over year percent change, monthly data, from FRED.

 
A few things jump out at me.

1)  We are approaching the top of a long term downward sloping trend channel.  That can't be good - unless we're about to break out and start a new trend.  Let me know ASAP if you have any reason to believe that is about to happen.

2)   During the 1950 to 1980 golden age, the peak-to-peak trend was level.

3)  Something changed (uh-oh) around 1980.  Here, I've placed the inflection point where the two trend lines meet, at April, 1978.  You may prefer the next peak at May, 1984.  Those are the only reasonable choices

Let's zero in on the recent years.

As we approach the trend line, the slope is faltering.  I wonder if we'll get there?

Here's a look at momentum, simple-mindedly conceived as month to month rate of change in this data.

There is is, slouching toward Zero.  Minimum was October, '08, Maximum was a year ago, February, '10.  Do you see any reason for optimism here?

No extra charge bonus (you always get your money's worth here): Civilian Employment/Population Ratio, also from FRED, and U6 Unemployment, as tracked at Portal 7.  More nutritious brain snacks, if you hunger for knowledge.
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Real Disposible Income Per Capita

Over at econbrowser, James Hamilton is optimistic that we have An improving economic outlook.  In comments, Stagflationary Mark disagrees, and shows why, with graphs of real disposable income per capita.

I think he's on to something.  So I used his data source (FRED - Mark has the links) and made my own graphs.  I like to put time series data on a log scale, to see if there is a constant growth rate.   Here is a simple, clean graph, on a log scale, with a trend line (Mark used an exponential trend line on a linear scale.)

Not too surprisingly, this is pretty similar to GDP/Cap.  Also, there might be a break point around 1980, as with GDP.  Let's have a look.

The years up to '80 are in green, from '80 on in red.  Now there are 3 trend lines.  The green line is quite different from the other two.  The post '80 line (red) has the lowest slope.

Lane Kenworthy, looking at income data, puts a break point at 1973.  Let's give that a try.  Up to '73 is in blue, post '73 in red, total data set trend line is in yellow.

Here, I think the 1973 breakpoint is even more convincing than in LK's graph.

Stagflationary Mark highlighted the last 10 years to emphasize the current stagnation.  Let's do that, too.

Here we can see the gap of the current condition from the long ago trend line (blue.)  Even worse, we're falling away from the total data set trend line (yellow.)  Even still more worser, we're falling away from the post '73 trend line.  Mark concludes:

Real disposable personal income growth is currently not back on track. I can pretty much assure you of that.

Like I said, I think he's on to something.  And doesn't that golden age look golden!

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More on the GOLDEN AGE

To date we have The Great Moderation, The Great Stagnation, The Great Inflation, and now Lane Kenworthy enters the fray with The Great Decoupling.

Similar to my graphs here, LK shows a break in median family income, as compared to GDP/family or, average family income.  Check it out.

The vertical line on this graph indicates an inflection point of 1973.  You could perhaps move it out to the next bump, if you squint, but not much further.  Irrespective of that detail, what this means, simply, is that the already wealthy have captured more of the pie since the break point.  Notice also that 1) the most recent decade is almost flat and 2) The Clinton years were a lot better than anything else after the break.

Of course, we knew all this, no matter how much regressives are in denial.

Update (2/2 7:30 pm) :  Krugman references this same chart, but cuts across it differently.  His point (emphasis added):

The rise in prices implied by real GDP numbers is measured by the GDP deflator, while the rise in incomes as calculated by the Census involves dividing by the CPI. And while those two price measures matched very well pre-1973, since then, not so much  .  .  .

He shows it in a graph, and mentions 1973, since that is LK's chosen break point. (In both the graphs PK shows, the break is clearly much closer to 1980.) Whatever else this might mean, it illustrates yet another difference in the world before and after 1980-ish.

I've eyeballed trend lines in LK's graph breaking around 1980.   Pick whichever break point you prefer.  Either way the slope difference before and after is striking.

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Remember the 70's?

I'm fascinated by the differences between the period from approximately 1950 to 1980 from other periods, either before or after.  Actually, the unique period might be (and probably is) even narrower - from the mid 60's to circa 1980.  I doubt that Krugman shares my fascination, but just today he pointed out a unique characteristic of the 70's. 

The two big commodity price shocks of the 70s did, in fact, feed quickly into core inflation. Since then, however, nada.

Here's the picture he posted.

There's even a smaller third shock around '69-'70 that he doesn't mention.  What a stark difference: from 1968 to '80 the two inflation measures move almost in lock-step.  Since then, the sticky measure has been very unresponsive to price shocks - i. e. -- sticky.

I'm not sure I buy the COLA explanation - though I can't really say how or why.  It does seem to be at least consistent with the expectations view of inflation that David Beckworth and many other economist (including Krugman) put a lot of stock in.

Of course, in an environment where inflation expectations get unanchored, like the 1965-1979 period, nominal spending shocks will have a greater impact on the price level and less influence on real economic activity.  

Steve is ahead of me here, and thinks he's sussed it.  More to come, I'm sure.  Stay tuned.
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What Made the 50's through 70's So Special?

Even before the recent issuance of Tyler Cowan's Great Stagnation E-Book, Steve at Asymptosis and I have been speculating about what made the first three (or so) post WW II decades special and different.  At first, I thought they were different from the period that followed.  Now, I think they may have been different from any time - possibly even a golden age.  I'll have more to say about this, and about Cowan's book, which I know I'll have to read, over the next days or weeks.

For now, here's a look at productivity, which is central to at least part of Cowan's point.  Krugman's point in this post is rather different, but he included a graph on productivity that got me thinking.  So I dug up productivity data from the BLS website, which took quit a bit of digging.   Fortunately, Skeptic at Reality Base did the same thing, and identifies the data series - year-over-year non-farm productivity growth (% change) as PRS85006092.

Here's my graph, obviously the same data Skeptic used.

 

For the data series, values during Democratic administrations are in blue, Republican in red.  If there is any significance there, I'm missing it.  Like Krugman, I've added a 5-year moving average (dark green line.)  The faint yellow line is a 10-year average, which doesn't seem to add much.  The blue horizontal line is the entire data set average of 2.24%.  Krugman evidently used a different series - his values for the 5-yr average are in a narrower band, and the shape of the curve, while similar, is not quite identical.

The average line reveals a clear downward trend from 1966 to 1982.  After that - despite a rather directionless and mostly below-average decade from '87 to '97, the trend was toward higher productivity growth - until the nose-dive following the 2002 recession.  Since 2006, productivity has turned up again, while the economy has faltered.  As Krugman recently pointed out, this is not a typical result.

But my focus is on the Post WW II period before the turning point, circa 1980.  The era of falling productivity growth coincidences quite closely with what Allen Meltzer calls "The Great Inflation."  I suspect this is not a coincidence.

I haven't read Meltzer's paper yet, and have a lot of other homework to do.  For now, I'm fascinated by the difference between the first 3 1/2 decades of my life and what has happened since.
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Government Spending and the Great Stagnation

At Asymptosis, Steve critiques the section of Tyler Cowan's book, The Great Stagnation that deals with government spending.   He also posts a graph rather like this one, stacking up various slices of Government spending. The green line indicates Defense spending; the purple line is Federal Non-defense spending, and the blue line is State and Local spending, each expressed as a percentage of GDP. 

Expenditures: NIPA table 3.9.5, lines 12, 17, and 22; GDP: NIPA GDP (annual)

Stacked graphs are hard to parse (at least for an old man in bifocals) so in a follow-up post Steve disambiguates these lines.   Thanks Steve!

Meanwhile, I went at it another way, looking at each of these spending elements on its own.  These next charts are based on the actual values, not percentages of GDP, and are presented on a log scale, from 1950 through 2010.  The purpose of a log scale, of course, is to indicated constant growth, at any growth rate, as a straight line.  A higher growth rate causes a steeper slope.

Here is Federal Defense Spending since 1950, log scale, with a trend line added.

Just for kicks, I've designated Republican and Democratic presidential administrations with Red and Blue segments, respectively.  Though the actual spending line snakes around the trend line, it never strays too far (though one may dispute that assertion for Reagan) and the past several years have been exactly on trend.  Most significantly, a single trend line fits the entire series quite nicely.  Please remember that.

Here is Federal Non-defense Spending, again, on a log scale, same time period.

Here the red and blue segments don't denote different party administrations; rather, they denote different eras of history.  I chose a break point of 1980.  This is arbitrary, of course, but near the inflection point by my aging eyes.  The pair of trend lines, for before and after 1980, fits the bifurcated data close to perfectly.

Here is State and Local Spending, log scale.

Same song, different verse.

Very clearly, some time circa 1980 there was a major turning point in government spending growth, for categories other than defense.

In an e-mail, Chris, another commenter at Asymptosis, pointed me to this post about Cowan's book.  I'll get into it in another post, lest this one become over-long and lose focus.  For now, the point raised is that the post WW II "Golden Age was the outlier, not our present era; it just doesn't make sense to talk about the present period as stagnant after centuries of easy growth."   I think this is partly correct, but majorly off target.  Yes, the period 1950 through 1980 is the outlier.  But that doesn't negate the present stagnation.  And easy growth in the more distant past might not have been so easy.

Without having actually read Cowan, I take his subtitle literally as the main thesis of his narrative:  We have picked the low-hanging fruit, and future growth will either be more difficult or require raiding some fresh orchard.

Some of Cowan's view is probably valid. But does it confirm his take on the underlying cause?  Here is an alternative view:  The post WW II Golden Age was golden because of robust growth in government spending, at the Federal, State, and Local Levels.  Since about 1980, non-defense spending has grown at a lower rate at all levels, and the economy has slowed significantly.

Hand-in-hand with this, of course is tax policy.   Deficits never got out of line in the Golden Age, because there was sufficient taxation to cover the outlays.

In a nutshell:
1) Taxation was reduced since 1980.
2) Spending growth was reduced since 1980.
3) Spending with adequate taxation (e.g. before 1980) never led to a deficit problem.
4) Since 1980, spending (specifically on destructive enterprises) without adequate taxation has lead to faltering GDP growth, the current staggering unemployment, social instability (Tea Party, I'm looking at you) due to grotesque wealth inequality, and misapplication of resources from productive enterprises to speculative churning and rent-seeking, specifically enabled by grotesque wealth inequality.
5) Therefore, deficits result from a) military (not social-program) spending and b) inadequate revenues caused by i) insufficient tax rate percentage on high wealth, and ii) current recession-depressed taxable earnings.

If there is a flaw in my reasoning, you could do me a big favor by pointing it out.

BTW - I'm neither simple-minded nor dogmatic enough to think this is the total answer.  I have a suspicion that there is something else other than taxing-and-spending policy going on beneath the surface that might have changed a few years before 1980, and Cowan might be on to something. 

Meanwhile, we're still screwed.

Update:  Menzie Chinn looked at some of this back in October. 

Ditto: Calculated Risk.
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Treasury Yields

David Beckworth asks:

To the extent the sustained rise in real yields is reflecting an improved economic outlook, can we not attribute some of that improvement to QE2?

. . . and shows a chart of the last several months of 10 Yr Treasury yields.  Sure enough, they're going up.

Does it mean much?  Maybe not.  Here is an up-to-date long-horizon chart from Yahoo Finance, showing where current yields are now, in a 30-year-long downward sloping trend channel that I eye-balled in.

There was a big underthrow almost 2 years ago.  Since then - pretty much business as usual.

As long as the curve is bounded by the trend lines, there's no real evidence that anything has changed.

Deja vu.  I made the same post, with more thoughtful commentary, about 6 weeks ago.  Today's chart is new, with data from Yahoo gathered today.


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Haiku Wednesday - Transition

Transition

Moving Right Along,

Destination uncertain;

When do we arrive?

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Six Word Saturday

Comcast In ---Olberman out -- Some coincidence.

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