History

 I wrote this on my Face Book page 6 years ago.

I see two great, overarching themes to all of human history.

1) War

2) The desire of a small privileged elite minority to dominate and exploit the rest of us.

These two phenomena rise from the same root: greed.

War is always and everywhere about one of two things -

1) Somebody trying to take somebody else's stuff - wealth, land, natural resources, strategic locations, a population to be exploited.

2) The oppressed trying to exact revenge or take back what they thought was once theirs.

Nationalism and religion get the masses fired up and willing to go to war, but they are never the root cause.

Wealth and power are fungible. Money gives one the power to dominate. And with both wealth and power there is always the desire for more, and no amount is never enough.

Greed might not be the root of ALL evil, but it is the root of the greatest and most consistent evils in human history.

A. D. 536 - A Terrible Year Leading Into A Terrible Century

You think 2020 is bad?

You're right.  It's a terrible, horrible, no good, very bad day.

But A.D. 536 was worse.

Labor Day

It's not just for Hot Dogs.  Here's Krugman.

H/T to Karlo

The Standard Deviation of NGDP Growth Since 1950 - Revised

This is a follow up to The Standard Deviation of NGDP Growth During the Great Inflation.  In that post I showed this 100 point scatter graph of the 12 Quarter average Compounded Annual Rate of Return [CARC] of NGDP vs 12 quarter Standard Deviation [Std Dev] of CARC from 1954 to 1978.  It then occurred to me that some of those red dots that have fallen down close to the yellow trend line might be misallocated.  What they represent are 3 quarters in 1957 when Std Dev had a chance to settle down between recessions, and the tumble down of Std Dev in the early 60's as the high Std Dev values of the the 1960 recession fell out of the 12-point data kernel.

This is illustrated in Graph 1.

Graph 1 CARC vs Std Dev 1954-78, With Points Reallocated

The red dots are data points from 1954 through Q1 '62.  The yellow dots are from Q1 '64 on. The blue dots are the three low Std Dev points from 1957, and the pink dots represent the transitions in and out of the 1957 blue-dot data, and the tumble down in Std Dev from Q2 '62 to Q4 ''63.  The original blue trend line is retained for comparison.  Note that removing these three blue and 8 transitional data points from the pre-1964 data set causes the negative correlation of that period to completely evaporate.

This might seem a bit arbitrary; but now we can observe a more tightly packed red data set, and the behavior of the pink data points does seem to be unusual.  The string of high side outliers in the yellow data set occurs in 1971-2, and is associated with the 1970-71 recession.

This piqued my curiosity, so I took a look at the bigger picture - all 253 quarterly data points from Q1 1950 through Q1 2013, shown in Graph 2. 

 Graph 2 - CARC vs Std Dev 1950 to 2012

I see the great majority of these points clustering or stringing out along imaginary upward sloping lines that suggest coherent data subsets, and a relatively small number of points [39, or 15.4% of the total] where the data is in transition between sets.

I parsed it out as shown in graph 3.

Graph 3 - CARC vs Std Dev 1950 to 2012 - Parsed Data

The data points are color coded to correspond with the straight lines that best fit each subset of data, describing 5 distinct realms.  Equations for the lines and R^2 values are also presented in corresponding colors.

The 39 light green dots represent the lowest Std Dev to CARC relationship.  The 72 dark green dots represent a slightly higher relationship. These two subset occur across all decades from the 60's on in times of stable NGDP growth, i.e times outside of recessions.  There are 41 blue points, representing a medium-high relationship.  These occur when the economy is either in or coming out of a recession.   The 53 yellow points represent a high Std Dev to CARC relationship.  This has occurred during especially severe recessions, or when recessions repeat within the 12 quarter data kernel.  The 8 red dots at the top of the graph are ultra-high.  They demonstrate the severe economic instability of the early post WW II years.  Four of these subsets exhibit extremely high R^2 values, above 0.91; and the fifth  [yellow] is quite respectable at 0.74.  The 39 pink dots occur in discrete short periods when Std Dev rises or falls sharply.

This is an unusual way of looking at GDP data, but I feel pretty good about it, because the linear subsets sort themselves out quite reasonably, and to my eye do not look contrived.  Also, the data points of each subset generally follow the trend lines, in either clusters or strings, for several consecutive quarters.  These subsets are trend stationary along the entire time span of the FRED data set, irrespective of inflation or disinflation; high or low levels of NGDP growth; and whether CARC is rising or falling.  This suggests that the relationship between CARC and Std Dev is not random.  Rather, it is deterministic, and also quantized.  I'm reminded of the chart of nested Phillip's curves Noah Smith posted, and the quantization of electron energy levels diagram shown here.

To draw an analogy, recessions provide the activation energy to boost the Std Dev from a low level trend line to a higher level trend line.  When the recession ends, the Std Dev naturally decays down to a lower level.

To bring this back into the real world, Graph 4 shows the 12 period CARC average from 1950 to 2013, with the CARC data points color coded to correspond with graph 2.

Graph 4 - CARC Color Coded to match Graph 2

The color coding is indicative of the economic conditions as described for Graph 3.   Note that each of these data sets is coherent, irrespective of the inflationary environment or the long trend NGDP growth level.  It is the presence or absence of recessions that mainly determines the realm in which the Std Dev of CARC resides. Outside of recessions, the data resides along one of the green lines.  When not following any of these lines, the CARC - Std Dev relationship is transitional, moving into and out of recessions.

What strikes me is that I simply eyeballed straight lines through this scatter of data as an exercise in curiosity, and it wound up making some sort of coherent sense. Each of the realms associated with the best fit lines is trend stationary in a way that is robust across time and varying economic conditions.

But NGDP growth, per se, tells you absolutely nothing about either the rate of inflation nor the Std Dev realm.  So - the big question in my mind is this: how can NGDP targeting be expected to lead to controlled, relatively stable economic growth at any desired level, unless you can also control not only the underlying rate of inflation, but also which Standard Deviation realm you end up in?

For anyone who's curious, Graph 5 shows the CARC - Std Dev scatter, color coded this time by decade.

Graph 5 - CARC vs Std Dev by Decades

Red - 1950-59
Yellow - 1960-69
Light Blue - 1970-79
Purple - 1980-89
Orange - 1990-99
Green - 2000-09
Blue - 2010-13

Note three things. 1) As the data moves across time, when it gets to one of the realms described by Graph 3, it tends to linger there.  These trend stationary realms have real traction.  2) Transitions generally take a short, quick route to the next trend line.  3) Since 1980 there has been a choppy but relentless migration to lower and lower NGDP growth.  We are now stuck in the worst recovery on record, and the lowest growth period ever to occur outside of a recession.  In fact, NDGP growth is now lower than that which has occurred within most recessions.

Whether fiscal policy, monetary policy, trade policy or something else I can't think of  is to blame, this is, to borrow a phrase from my seven-year-old granddaughter Emily, a "total epic fail" of economic policy.  It is grim on a scale unprecedented in the post WW II period.

More Right Wing Lies - Redux

Foreword

Unlike right-wingers, frex. Amity Shlaes, I like to get things right.  In fact, when one is refuting a liar's lies, I believe its important to be meticulously correct.  Hence this rework of my previous post.

As I was thinking about Graph 3, it occurred to me that the numbers there were far too small, around 100 million at the maximum, when they should be in the billions.  I'm not sure what that graph represents, but it is certainly not the total of income tax revenues.  That sent me on a quest to find better numbers, which I did.  You will find them in Graph 3 and 4 of this rewrite.  Much to my chagrin, I also found I put the wrong data in Graph 2, now corrected here.  Since I want to cross-post this at Angry Bear, I've also made a few editorial changes to make it more Bear-worthy.

~ : ~ : ~

Amity Shlaes, the disinformation bunny, is still going.  In the latest issue of Imprimus, a publication of Hillsdale College, is a transcript adapted from a recent talk she gave there during a conference on the Income Tax, sponsored by Hillsdale's own Center for Constructive Alternatives and the Ludwig von Mises Lecture Series.  Right away, you know this is going to be good.  The Title of her contribution is Calvin Coolidge and the Moral Case for Economy.  Of course, by economy, she means austerity.

There is so much wrong here it's both impressive and depressing.  Rather than give her the full FJM treatment, which would take more time and energy than she deserves, I'll just hit on a couple of the lowlights.  Here is her opening paragraph.

With the Federal debt spiraling out of control, many Americans sense an urgent need to find a political leader who is able to say "no" to spending.

Here we go. Her first sentence is an exercise in made-up right-wing talking point mythology.  I've already exploded the 'Obama is a profligate spender" myth, here, here, and here. Further, we have just lived through three years when federal spending was close to flat line, as Graph 1 shows.  

 Graph 1 - Flat Federal Spending Under Obama 

There is only one comparable period in post WW II history, 1953-56, during Eisenhower's first term, as shown in Graph 2.   Still, over Ike's full term, spending grew by about 30%.

 Graph 2  Not So Flat Spending Growth Under Eisenhower ('53-'60)

To suggest that federal dept is now  "spiraling out of control" due to excessive spending is not merely disingenuous.  It is a sign that either Shlaes has no earthly idea what she's talking about, which in an alleged journalist, is unforgivable, or it's a bare-faced lie, which is unforgivable for anybody.  And if many Americans are feeling the urgent need to curtail government spending, it's because they have been lied to so repeatedly and often that they have no idea what the truth is.  As Krugman recently put it: "And I have to say, it’s extremely telling that conservative Republicans don’t seem able to make their case without resorting, right from the beginning, to obviously dumb fallacies."  The truth is that if we have a debt problem, it is due to a shortfall in revenues.

Yet they fear that finding such a leader is impossible.

Its not clear who made Shlaes the spokesperson for this sorry, disenfranchised segment of the population, nor that this is indeed what they fear.  Perhaps we should introduce Shlaes and the rest of these Real Americans to the real President B. Hoover Obama.

Conservatives long for another Ronald Reagan.

This is probably correct, though as Shlaes goes on to demonstrate, conservatives in this way - and, alas, right-wingers almost always - are rather badly disconnected from reality.

He was of course a tax cutter, reducing the top marginal rate from 70 to 28 percent.  But his tax cuts - which vindicated supply side economics by vastly increasing federal revenue - were bought partly through a bargain with Democrats who were eager to spend that revenue.

Wrong again.  The reality is that Revenue growth under Reagan was the worst of any 20th century President, post Eisenhower, except for the unfortunate Bush, Sr. under who's recession plagued regime Reagan's buzzards came home to roost. And was it really the Democrats who spent that anemic revenue stream, or did it go to Reagan's Star Wars fantasy?

Reagan was no budget cutter.  In fact, the federal budget grew over a third during his administration.

Here, she finally gets something right, if by "federal budget" she means Total Outlays, and by "over a third" she means over 80%  [as measured from 1980 to 1988.]

Things get really egregious further on in the section titled "The Purpose of Tax Cuts."  She informs us that President Coolidge and Treasury Secretary Andrew Mellon campaigned to lower top rates from the 50's to the 20's.

Mellon and Coolidge did not win all they sought.  The top rate of the final law was in the forties.  But even this reduction yielded results - more money flowing into the treasury - suggesting that "scientific taxation" worked.  By 1926, Coolidge was able to sign legislation that brought the top marginal rate down to 25%, and do so retroactively.

I was surprised to learn that Coolidge and Mellon had anticipated the Laffer curve by 6 decades.  Let's have a look at how more money flowed into the treasury. In 1922 and '23, with a top marginal rate of 56%, tax revenues were $2.23 and 1.69 billion respectively. [Per FRED, 1923 was a recession year]  In 1924, with a top rate of 46%, total revenues were $1.79 billion.  This is what Shleas calls "more money flowing into the treasury."  Here's a bigger picture look.  In 1920, when the top marginal rate was 73%, receipts were slightly over $4 billion.  In 1925, when the top marginal rate was 25%, receipts were $1.7 billion, less than half of the 1920 value, and by 1929 had only increased to 2.23 billion.  Graph 3 shows revenues per year [Coolidge's term highlighted in red,] and belies Shlaes' assertion.

 Graph 3 Income Tax Revenues, 1915-1930

Graph 4 shows a scatter plot of this same data, with revenues as a function of top marginal rate, Coolidge years are again highlighted in red.

Graph 4 Top Marginal Rate and Tax Revenues, 1915-1930

A best fit straight line is included.  There's lots of scatter, for a variety of reasons, but the upward trend - the exact opposite of Shleas' assertion, is obvious.

So here's the reality.  A decade of tax cutting and deregulation led us into the Great Depression, the worst economic collapse of the 20th century. [You might note that the following decades of high tax rates and robust regulation were free of these horrible events.]  And what happened most recently?  A decade of tax cuts and deregulation - the end game of three decades of this supply-side approach - led to the greatest economic collapse since the Great Depression.  Significantly, the major deregulations of big finance, including the repeal of Glass-Steagall came at the end of Clinton's term, less than a decade prior to the financial melt down.  Last Friday on his radio show, Thom Hartmann pointed out that prior to the regulations put in place in the 30's, the U.S. had never gone for more than 15 years without a major financial collapse.  So this result should have been expected.

The extraordinary thing isn't that right wingers lie.  The simple reality is that they can't make their case without lying, because it has no merit.  The extraordinary thing is that their lies are so easily rooted out and refuted, in the era of free and easily accessible information, but so few people will take the required few minutes to go ahead and do it. Sadly, whenever the truth comes up against a cascade of lies, the liars have a significant tactical advantage. 

Shlaes' presentation is just one more manifestation of the right wing ploy of denying reality.   Sadly, it works, because you really can fool a lot of the people a lot of the time.

More Right Wing Lies

Amity Shlaes, the disinformation bunny, is still going.  In the latest issue of Imprimus, a publication of Hillsdale College, is a transcript adapted from a recent talk she gave there during a conference on the Income Tax, sponsored by Hillsdale's own Center for Constructive Alternatives and the Ludwig von Mises Lecture Series.  Right away, you know this is going to be good.  The Title of her contribution is Calvin Coolidge and the Moral Case for Economy.  Of course, by economy, she means austerity.

There is so much wrong here it's both impressive and depressing.  Rather than give her the full FJM treatment, which would take more time and energy than she deserves, I'll just hit on a couple of the lowlights.  Here is her opening paragraph.

With the Federal debt spiraling out of control, many Americans sense an urgent need to find a political leader who is able to say "no" to spending.

Here we go. Her first sentence is an exercise in right wing talking point mythology.  I've already exploded the 'Obama is a profligate spender" myth, here, here, and here. Further, we have just lived through three years when federal spending was close to flat line, as Graph 1 shows.  

 Graph 1 - Flat Federal Spending Under Obama 

There is no comparable period in post WW II history.  Graph 2 shows the next flattest era under Eisenhower, when spending grew by about 50% over the term.

 Graph 2  Not So Flat Spending Growth Under Eisenhower

To say federal dept is "spiraling out of control" is not merely disingenuous.  It is a sign that either Shlaes has no earthly idea what she's talking about, which in an alleged journalist, is unforgivable, or it's a bare-faced lie, which is unforgivable for anybody.  And if many Americans are feeling the urgent need to curtail spending, it's because they have been lied to so repeatedly and often that they have no idea what the truth is.   The truth is that if we have a debt problem, it is due to a shortfall in revenues.

Yet they fear that finding such a leader is impossible.

Its not clear who made Shlaes the spokesperson for this sorry, disenfranchised segment of the population, nor that this is indeed what they fear.  Perhaps we should introduce Shlaes and the rest of these Real Americans to the real President B. Hoover Obama.

Conservatives long for another Ronald Reagan.

This is probably correct, though as Shlaes goes on to demonstrate, conservatives in this way - and, alas, typically - are rather badly disconnected from reality.

He was of course a tax cutter, reducing the top marginal rate from 70 to 28 percent.  But his tax cuts - which vindicated supply side economics by vastly increasing federal revenue - were bought partly through a bargain with Democrats who were eager to spend that revenue.

 The reality is that Revenue growth under Reagan was the worst of any 20th century President, post Eisenhower, except for the unfortunate Bush, Sr. under who's regime Reagan's buzzards came home to roost. And was it really the Democrats who spent that anemic revenue stream, or did it go to Reagan's Star Wars fantasy?

Reagan was no budget cutter.  In fact, the federal budget grew over a third during his administration.

Here, she finally gets something right, if by "federal budget" she means Total Outlays, and by "over a third" she means over 80%  [as measured from 1980 to 1988.]

Things get really egregious further on in the section titled "The Purpose of Tax Cuts."  She informs us that President Coolidge and Treasury Secretary Andrew Mellon campaigned to lower top rates from the 50's to the 20's.

Mellon and Coolidge did not win all they sought.  The top rate of the final law was in the forties.  But even this reduction yielded results - more money flowing into the treasury - suggesting that "scientific taxation" worked.  By 1926, Coolidge was able to sign legislation that brought the top marginal rate down to 25%, and do so retroactively.

Let's have a look at how more money flowed into the treasury.  In 1919-21, when the top marginal rate was over 70%, receipts were over $120 million.  By 1925, when the top marginal rate was 25%, receipts were in the $60 to 90 million range, and by 1929 had declined to about $50 million.  As Graph3 shows, Shlaes' lie is simply astounding.

Graph 3 Federal Revenues Collapse During the 1920s

So here's the reality.  A decade of tax cutting and deregulation led us into the Great Depression, the worst economic collapse of the 20th century. [You might note that the following decades of high tax rates and robust regulation were free of these horrible events.]  And what happened most recently?  A decade of tax cuts and deregulation - the end game of three decades of this supply-side approach - led to the greatest economic collapse since the Great Depression.  Significantly, the major deregulations of big finance came at the end of Clinton's term, less than a decade prior to the financial melt down.

The extraordinary thing isn't that right wingers lie.  The simple reality is that they can't make their case without lying, because it has no merit.  The extraordinary thing is that their lies are so easily rooted out and refuted, in the era of free and easily accessible information, but so few people will take the required few minutes to go ahead and do it. 

Shlaes' presentation is just one more manifestation of the right wing ploy of denying reality.   Sadly, it works, because you really can fool a lot of the people a lot of the time.

Strategic Lying as Political Art

If you listen to Randi Rhodes, you know she is still livid over Romney being declared the "winner" in last week's - we'll call it a "debate" for the nonce.

Alas, though, the reason he won is that poll numbers have moved in his favor.  Whether that bounce is robust remains to be seen.  But it did gain Romney some sort of advantage, at least in the near term.

Randi's objection is that Romney lied, repeatedly, and about almost everything.  In the process, he flatly repudiated some of the major planks in his platform - the destruction of Medicare as we know it, the $5 Trillion dollar tax cut, the reduction of tax share paid by high income people, and an insurance plan not covering pre-existing conditions stand out in that regard.   And these are but a few of the 27  debate lies that can easily be recognized and refuted.

Indeed, the one rare moment of lucid candor came when he eagerly, gleefully announced that he would send Big Bird to the unemployment line in order to avoid borrowing money from China.  Big NPR whoop!  To put this in perspective, for CY 2012, the Federal Government, via the Corp. for Public Broadcasting, is contributing $26.65 million in support of PBS, or 0.0007% of total Federal expenditures ($3.77 Trillion) for 2012.    In fact, the entire Federal contribution to CPB is $445.2 million, or 0.0118% of total expenditures. That's sure going to help balance $5 Trillion in tax cuts over ten years. (CPB data from Wikipedia, current expenditure data from the St. Louis Fed.)   Romney isn't lying about our creditor position with China, but he was certainly misleading.  According to Fox News (!) "China, it turns out, holds less than 8 percent of the money our government has borrowed over the years."

OK, I get where Randi is coming from - to have a totally unprincipled opportunist in charge of running the world's greatest super power is not a recipe for any kind of enduring success, either for the U.S.A. specifically, or for the world at large.  There are many historical examples one could cite, but we really needn't go back any further than the "compassionate conservatism" of unprosecuted war criminal and would-be social security privatizer George W. Bush to make the point.

But what Randi refuses to acknowledge is that what we witnessed last week was not a debate, by any recognizable definition of the term.  Lying will get you disqualified in a real debate - right?  This was political theater - and what is theater but staged fiction? 

And there is nothing unusual here.  I've been saying for years that all Republicans do is lie, and then lie about their lies. (I might have gotten that phrase from Randi - the memory is foggy.)  Here is a four-year-old exposé of some of Romney's shape shifting.  (H/T to Dave Brockington at LGM.)




A more insidious kind of lie is simply denying reality, as characterized by birtherism, New Deal and global warming denialism, and Friday's epidemic of conspiracy theories surrounding the latest favorable jobs report.   But I digress.

Here is my point.  Brad Delong points us to a 1984 Fay Joyce article in the N. Y. Times uncovered by Michael Moore.  It turns out that lying during a debate is a time honored Republican strategy.  Even 28 years ago, when there was some chance of the main stream media doing actual journalism, they were confident in their lying strategy.

The Republicans are unabashed in their discussion of their ability to use the television medium. "You can say anything you want during a debate and 80 million people hear it,'' observed Peter Teeley, press secretary to Vice President Bush. If reporters then document that a candidate spoke untruthfully, ''so what?''

''Maybe 200 people read it or 2,000 or 20,000,'' he said.

Now, they have honed it into an art form.  And it's worth remembering the one reason that always accounts for every person's lie: their agenda is not compatible with the truth.

What is the Economic Middle Class?

My lovely wife shared this link with me on Facebook.  I got into a discussion in comments there with a right winger who suggested that $250,000 was a very reasonable estimate for median income in Boston.

As it turns out, median household income in Boston is $51,914, close to the national average, and way below the Mass. State average of $67,950.  But right wingers live in a data-free world, so this is no surprise.

Another contention in comments at that site is that the middle class is undefined and undefinable. Not so.  I define middle class household income as the middle quintile.  This range includes the median and a band around it wide enough to hold 20 percent of the population.  You might wish to concoct your own definition with a wider spread, but you'd better not be asymmetric around the median.  Feel free to use the middle three quintiles, if that is your preference.  But if your of concept of middle class gets very far beyond 50% of the population, you really ought to give more thought to what the word "middle" actually means.

Thinking about all this prompted a look at the various income quintiles.  The data, through 2009, is available at the Census Bureau web site, table 694.  This table provides historical data from 1967 through 2009 on the top income limit for the bottom 4 quintiles, and the bottom income limit for the top 5%, expressed in constant 2009 dollars.

Graph 1 presents this data.  The 3rd quintile - my definition of the middle class - is between the orange line and the yellow line.

In 1967, the threshold for the middle quintile was $32, 848.  By 2009, it had increased by 17% to $38,550.  This is a compounded annual growth rate of 0.38%

In 1967, the top limit for the middle (and threshold to the 4th) quintile was $46, 621.  By 2009, it had increased by 33% to $61,801. This is a compounded annual growth rate of 0.68%.

The threshold value for the fifth quintile increased from $66,481 in 1967 by 80% to exactly $100,000 in 2009.  This is a compounded annual growth rate of 0.98%.

To reach the top 5% required an income of 106,684 in 1967.  By 2009, this had increased by 69% to $180, 001.   This is a compounded annual growth rate of 1.25%.

So my comment sparring partner and the current presidential challenger he seems to support are a bit off base.  $250,000 in household income puts a family well above the 95th percentile.  In fact, that is just enough household income to crack the top 2%.

My ongoing hobby of debunking right wing nonsense aside, the point of this post is mainly to inform.
There are two main observations:
1) While the bottom two quintiles haven't changed much over the decades, entry to the third quintile has crept up a bit; and into higher categories it's moved up a lot.  We recognize this as stagnation in the bottom half and growing inequality in the top half, skewed powerfully to the top.
2) This data set stops in '09, so Obama is outside the discussion.  But we can see that all the way up to the 95th percentile, income growth was dead flat during the Bush administration.  No wonder the 95% percentile feels so poor.

But -- surely, some wealth was generated during those 8 years.  GDP growth was positive at least some of the time.  I wonder where it all went?

WTH?!? Friday - So Wrong on So Many Levels

Really - There's nothing I can say that will make it any better.

Or any worse.

If I'm reading my Roman (the only thing appropriate in the whole clip) numerals correctly, it's from 1933.





Aaaack!   Now, I must scrub my brain with a Brillo pad, then go hug a squid.

How Important Is Hayek?

Art reminds us of one of Krugman's posts from a couple weeks ago, with this PK quote:

"David Warsh finally says what someone needed to say: Friedrich Hayek is not an important figure in the history of macroeconomics."

PK goes on to point out that Hayek's current relevance is almost purely political rather than economic, with the implication that it is a distorted view of Hayek that the current crop of right wingers uses to oppose anything that smacks of progressivism. Warsh, in the link above, is more blunt, or as PK puts it, "cruel."

To be clear, this bluntness and/or cruelty is not leveled at Hayek himself, but rather at those who would self-servingly re-animate him as a conservatard caricature.

Warsh: "But the claims conservatives are making about the role he played as an economist are beginning to smack of Ruizismus. That is, they have jumped a caricature out of the bushes late in the day and claim that their guy ran a great race."

Warsh took a lot of heat in comments - which he accepted with almost saintly forbearance - from right wingers who misread his post. These are not stupid people. Their misreading comes from ideological blindness - an insidious form of self-induced, willful ignorance.


My comment at Warsh's place, from earlier today:

I’m later than late to this post, and took the curious route of reading the comments first. That made the post itself quite a revelation. Having no dog in this fight, it’s pretty easy for me to see that it is far from the hatchet job that several other commenters imagine it to be.

It’s not clear whether the point is to damn Hayek with faint praise or to praise him with faint damnation. But there is some attempt at balance, and it is clear that accusations of ad hominem are rising from fevered imaginations. An unbiased reader will note that mention of Hayek’s divorce was in the context of “Thereafter he labored under five distinct handicaps,” which is actually giving him a bit of cover for decades of relative obscurity.

Re: the n-gram chart, (linked in comment 24 by Paul Wolfson) it’s easy for an objective observer to note that Hayek had gone absolutely nowhere for 30 years before his Nobel reception tickled a modicum of interest. Then Reagan/Thatcher supply-side-ism – however irrelevant – gave him a boost, for about a decade. Since then, even with Beck’s hucksterism, it been flat-line, at best, for well over a decade.

The decline of Keynes and Friedman over that same span may well reflect the general dumbing-down of practically everything in a sound-bite age dominated by professional liars like Gingrich, Limbaugh and Murdoch’s entire stable, and dim-wits like Paul Ryan, Michelle Bachman and Rick Perry.

Even in his grave, poor Keynes has been ad-hominem-ed to death. More so that any other currently dead economist. Well, except for Marx.

So – are we screwed, or what?

Food Stamps

Mish provides a chart on food stamp usage.  Here's a screen shot.

The most recent recession, that allegedly ended in 2009, is like nothing in living memory, unless you're a keen minded octogenarian.  Mish's reader, Tim Wallace, provided the graph, and an extrapolated estimate that the number of people on food stamps will rise from the current 46 million to about 51 million by 2013.

Extrapolations are dicey, and a linear extrapolation of a clearly non-linear function doubly so.

However that turns out, this does indicate that we are living in strange days.

Wallace notes: "that food stamp usage sloped down throughout the Reagan presidency until it started back up in 1989, ahead of the recession that doomed Bush I, then continued for several more years."  That drop was from roughly 22 million in 1981 to 18 million in 1988 - about 570,000 per year.  Under Clinton - not mentioned in Mish's excerpt from Wallace's e-mail, usage dropped from roughly 27 million in 1994 to 17 million in 1999 - about 1.67 million per year.

I don't know if either of them was trying to make a political point, but I sure am.

The unknown here is how requirements to recieve food stamps might have changed over time.  Did anything happen on that front during the Reagan years?

Update:  In comments to this post, Jerry Critter does the leg work on the Reagan question.  I've lifted his comment up to here.

According to Wikipedia "[m]ajor legislation in 1981 and 1982 enacted cutbacks" and "[r]ecognition of the severe domestic hunger problem in the latter half of the 1980s led to incremental expansions of the FSP in 1985 and 1987".

So, Reagan reduced the program and then was forced to expand it again because of too many starving people. At least he recognized his mistakes and tried, even if it was half-hearted, to correct them. He also raised taxes after first cutting them, again recognizing a mistake.

Today's republicans just say "Screw you".

Update 2:  Here's a NYT article on the history of food stamp usage.   And here is an Aug 1, 1981 article on the Reagan budget cut that affected the program.

Quote of the Day: "The Blueprint for Modern America"

In some of my more cynical moments, I think that, when the south seceded from the Union, President Lincoln should have just said, "The hell with them.  Let 'em go.  Who needs them, anyway?"

This would have been (and I am deadly serious) very good for the rest of us, but really, really bad for the south.  (If you think I need to elaborate, you need to give this some serious thought.  Hints: beneficiaries of federal programs (like TVA and rural electrification), net gains from federal taxation, locations of military bases, whatever social progress Selma, Alabama has reluctantly been dragged into.)

Even before the civil war, the south was a huge impediment to progress.  The 37th congress - the first to convene without southern representation, due to the secession - "did more than any other in history to change the course of national life. As one scholar has aptly written, this Congress drafted “ 'the blueprint for modern America.' ”

More than just a H/T:  Steve elaborates.

A Different Look At The Great Stagnation - Pt 2

For part 1, see here.

THE GOLDEN AGE AND THE GREAT MODERATION

The golden age was a period of strong, but sometimes erratic, economic growth.  To illustrate this, consider the quarterly rate of change since 1947 in gross domestic product (GDP.)   GDP is an aggregate measure of all the goods and service produced in the country.  It’s not perfect, but it is a reasonable barometer of the state of the economy, and growth rates tell you where it is headed.  The Bureau of Economic Analysis (BEA) provides relevant data in many forms.  Graph one is a data plot of quarterly percent change from the preceding period in real (inflation adjusted) GDP, seasonally adjusted at annual rates, from BEA. This plot is color-coded by presidential administration, blue for Democrats, and Red for Republicans.  As you can see, this number jumps around a lot, but less so in recent decades.  Also shown are the average values for all data from 1947 through 1980, 3.73%, in green, and the average from 1981 through the first quarter of 2011, 2.81%, in red.  Note that since 1981, average GDP growth has been almost a full percentage point lower than it was during the Golden Age.

Also shown is an 8 year moving average in yellow.  I chose an 8 year span for the moving average to smooth out over the length of a two-term presidency, but any long moving average will tell the same story. Until recently, the lowest dip in that (moving average) line bottoms out at 2.35% in 1982, and the highest bottoms out 2.71% in 1986, with no particular pattern across time.  The lowest bottom of all occurred in the recent Great Recession, bottoming out at 1.54% in the second quarter of 2009.  The dramatic change is in the tops. After a broad double peak from 1966 to 1969, topping out at 5.39% and 5.29%, the remaining peaks are between 3.99% and 4.07% - scarcely above the golden age total period average.  The other notable feature is the steady decline in quarterly data peaks throughout the G. W. Bush administration and the corresponding slide in the eight year average, culminating in the crash of 2007.

Figure 1

During the Great Stagnation, the reduced volatility in the quarterly GDP growth numbers appears in the graph as generally less severe bottoms, and even more dramatically as less expansive tops.  The degree of volatility can be precisely determined using the statistical technique of standard deviation.    The next graph shows how the standard deviation has changed since WW II.

 Figure 2

The blue curve is the standard deviation (Std Dev), based on the previous 34 quarters.  We’ll get to the red line later.  Sure enough, the Std Dev falls over time, as the blue best-fit trend line confirms, but it does not fall monotonically.

How can we account for this?  In the 50's, there was economic turmoil, as the economy restabilized during the first wave of the baby boom, and about 7 million soldiers reentered the work force following WWII - which came hard on the heels of the Great Depression.  This was a dynamic time, with wild growth peaks in 1950, '52, and '55, along with recessions in 1953, '58, and '59-60.  Then came the First Little Moderation  - a decade with steadier GDP growth and – most significantly, no recessions until late in 1969.   The 70's brought stagflation, the end of the Viet Nam war, and another series of wild gyrations in GDP growth - though, except for one spike in 1978, and the recession of 1980 - not as wild as the '50's. Reagan's high spending and deficits held recessions at bay after 1982, and volatility began to decline a few years later.   After a modest peak in late 1987, GDP growth declined as well, and the resulting recession contributed to denying George H.W. Bush a second term.  The Clinton administration gave us relative prosperity, along with the Second Little Moderation – another multi-year span without a recession.  Volatility remained steady at a low level throughout his two terms, before dropping further to an all-time low in 1999.  Despite this, his policies were too conservative to rekindle anything like a golden age. By 2000, the wheels were about to come off the Clinton boom anyway, but the grotesque economic policies of the George W. Bush  administration threw us farther over a deeper cliff than was necessary.  His profligate spending made Reagan look prudent, and gave us an anemic and declining series of GDP mini-peaks, culminating in the crash of 2007.  Barack Obama’s administration has not been able to foster significant growth and a robust recovery while dealing with a Congress dominated by blue dog Democrats and overtly obstructionist Republicans.  It’s particularly interesting that the recent Great Recession barely registers as a blip on the blue line.

Which brings us to the red line in Fig 2: relative standard deviation (RSD), determined by dividing the standard deviation by the average of the same 34 data points, here multiplied by 3.5 to put it on the same scale as Std Dev.  Part of the reason that the Std Dev became smaller over time is that the numbers used to calculate it were smaller. To this extent that this is operating, the Great Moderation is a meaningless data artifact.  However, if this were strictly true, the best fit line for RSD would be exactly horizontal.  It’s not, but it does have a smaller slope than does the best fit line for Std Dev, so the idea is not totally without merit.  Let’s have a closer look.

By the end of the first Little Moderation, RSD dropped to a level below that of most of the Great Moderation.  It then rose slightly, was stable from ’71 to ’73, and took a big jump with the recession of ’74.  After slipping over the rest of the decade, RSD shot to an all time high during the recessions of ’80 and ’82.  The big drop occurred between ’87 and ’90, and the low level was maintained until the Great Recession.

Volatility is the intensity of variability.  Big changes in short time spans register as volatility, causing Std Dev and RSD to increase.  As figure 1 shows, the biggest variations come from recessions and quick, strong recoveries.   There were three recessions in the 50’s so RSD never had a chance to decline.  The 60’s and the 90’s were both recession-free, so RSD could decline in the one case, and stay low in the other.  The recessions of the 70’s were deep, but the recoveries were strong, so volatility climbed.  The back-to-back recessions of ’80 and ’82, with sharp recoveries in ’81 and ’83 took RSD to an all-time high.  The Great Recession propelled RSD back up to a level not seen since the 80’s.  Simply, all of the volatility jumps can be explained in terms of recessions.  Avoid recessions, and Std. Dev. will be low.

How, then, do we explain the two Bush administrations, with their recessions in 1990 and 2001, but no jump in volatility?  In each case the fall into recession was not sudden – it followed several months of low or declining GDP growth.  Similarly, in each case, the climb back out of recession was slow, faltering, and failed to generate even a single quarter where GDP growth topped 7%.  In contrast, from WWII until 1983, top recovery quarters typically exceeded 10%.

What this indicates is that the Great Moderation really is a data artifact – though not quite in the way I expected.  Reduced GDP growth numbers play a part, but the real key is understanding how recessions contribute to observed Std Dev.  Recession-free times have low Std Dev values, and tepid recoveries from recessions that occur in a low growth context will also have low values.  While the Great Moderation is real, the standard explanation is inadequate, and comes from failing to look at the data with a critical eye.


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This was intended to be a chapter in a multi-author book project.  The project fell through for reasons not related to the project itself.

Quote of the Day

Michael Hudson:  (Somewhat ironically, that link was broken.  Here it is.) 

In more modern times, democracies have urged a strong state to tax rentier income and wealth, and when called for, to write down debts. This is done most readily when the state itself creates money and credit. It is done least easily when banks translate their gains into political power. When banks are permitted to be self-regulating and given veto power over government regulators, the economy is distorted to permit creditors to indulge in the speculative gambles and outright fraud that have marked the past decade. The fall of the Roman Empire demonstrates what happens when creditor demands are unchecked. Under these conditions the alternative to government planning and regulation of the financial sector becomes a road to debt peonage.

This powerfully reinforces what I said here and here (including the comments.)  Here, too.  Also here.  Check also the Mike Kimel and Andrew Dittmer links here.

H/T to Art.

The Ruling Clawss

Thanks to Eric at Edge of the West, we learn that children's author and illustrator Syd Hoff "had a radical alter ego, a Mr. Redfield who drew cartoons for the Daily Worker." 


Here is a gallery of Redfield's work, collected as The Ruling Clawss  in 1935.  The vast majority of these sharply pointed political cartoons resonate with startling clarity 66 years later.


Check it out.

Quote of the Day

I love it when Paul Krugman agrees with me.

I sometimes like to say that modern conservatism isn’t an attempt to turn the clock back to the Gilded Age, it’s an attempt to roll things back to before the Enlightenment, with all that godless talk about numbers and evidence and all that. Doesn’t sound that silly now, does it?

Never mind Darwin — let’s go after Newton!

As I put it on March 24th:

My tentative conclusion is that the Koch Bros. or their equivalents in any time or place, will do everything they can to amass as much as they can, at the expense of everyone else. Whether this involves slavery, serfdom, indentured servitude, or "I owe my soul to the company Sto'e" is an accident of local conditions. The post WW II era in America (and possibly Europe) is an aberration in history.

What you see now is a vigorous attempt to roll back not only the new deal, but early 20th century progressivism, the 13th Amendment, the rest of the constitution, and the enlightenment on which it is based.

They want to take us back to the 12th century. This is not hyperbole. I am deadly serious.

The ever polite and retrained Mr. P.K. does not go far enough, though he is directionally correct.

For more of my elaboration, see here.

The Decline of Manufacturing

Art has been speculating on the trends in U.S. total manufacturing employment in the post WW II era.

The graph of the data can be seen in FRED series MANEMP.

Art's graph's with eyeballed trend lines are here and here.    I suppose one can parse a curve like this in a number of ways.  All the peaks and valleys tease the eye and complicate interpretation.  Math to the rescue.

I suggested the correct techniques for determining trends:

The correct way to construct trend lines is across the troughs if the trend is upward, and across peaks if the trend is downward. Each line, so constructed, points clearly to the time ca 1974-1980.

Alternatively, take a fairly long average (to smooth the variations) and look for rate of change in the average. Or wrap a +/- 1 standard deviation envelope around the average and see where the original data points fall in that envelope. 

I see three regimes:
1) up to 1974/80 increasing
2) thence to 1999/2000 decreasing slowly
3) the Shrubian collapse

The three regimes were by eyeball, not any technique.  I should take my own advice. The following graphs will be busy. To see the simpler versions, click the FRED link or Art's links above.  The first graph below includes an 8-Yr moving average (pink), an envelope 1 standard deviation above (red) and below (green) that average, an additional line (also green) starting in 1975 at 2 standard deviations below the average, and trend lines along the peaks and troughs.

Total U.S. manufacturing employment

Looks like three regimes to me.  The first, with higher highs and higher lows runs from the beginning of the data set up to 1975 (bottoms) or 1979 (tops.).   From then on, there is never again a higher high nor a higher low.  The lows level off until 1993, and the highs collapse.  After that point, the lows get much, much lower, and peaks cease to exist.

Three regimes: 1) robust, but erratic, growth through the 1973 peak, 2) stagnation into the 90's with level lows and declining highs, 3) collapse.  The data points never go any higher than a full standard deviation BELOW the moving average - an almost inconceivable decline.  Note that the shrinking standard deviation envelope in the 2nd regime is due exclusinely to the loss of recoveries, as troughs remain at a constant level: the Great Stagnation.

Next is YoY rate of change for the eight year average.  Also included are 8, 13, and 18 year averages of RoC, and some trend lines on tops and bottoms.   The beginnings of selected presidential administrations are also indicated.

Manufacturing employment - smoothed YoY RoC

Note that with the Reagan inauguration we have the first major peak that is lower than the preceding peak.  With Clinton there is a kind of quasi-recovery - though the ultimate high in 2001 is less than the previous high in 1991, and only barely in positive territory.  With Bush we witness what appears to be the onset of the death of manufacturing in America - a continuously negative rate of change for a complete decade.

Again, I see this as three regimes, the first two defined more by the tops than the bottoms: 1) level to increasing tops through 1970, 2) stagnation with declining tops through the end of the century, 3) utter collapse under Shrub.

Once again, this demonstrates the great stagnation - less and less manufacturing effort in the last three decades of the previous century.  Now, in 2011, there are fewer people employed in manufacturing than there were in 1949.

This is the legacy of decades of Rethug rule.

Another Day Older . . .

In comments, Art protests about me making Reagan and Bush II the object of scorn over the issue of household debt.  He suggests yet another FRED graph, which goes back a little further, and shows more debt burden rise in the 50's.  This is Household Credit Market Debt Outstanding divided by Seasonally adjusted Salary Accruals.

I think Art wants to tell a story where debt growth has been on a continuously increasing trajectory through the entire post WW II period.  Clearly, this is not the case.  The graph above shows there was an actual decrease in debt burden in the 60's, then only a slight increase during stagflation and the moribund Carter administration.  Given the context of the previous decade and a half, the Reagan/Bush I regime pretty badly screwed workers.  Clinton did not reverse the tide, but - for a while, at least - was able to stop the bleeding.  Then Shrub started adding coffin nails by the hundred weight.

Back in the early part of the graph, things don't look so good, either.  So we can detect a pattern of Household Debt/Salary Accruals increasing across decades - but ONLY when there is a Rethug in the White House.

Somehow, though, this strikes me as not really being fair to Ike.  The increase during his administration is roughly from .5 to .9.  This is close to doubling, but the initial value is pretty low.  Coming out of WW II household debt was quite low, for a variety of reasons, including war-time rationing and supply constraints.  There was probably an excess of savings. There could well have been a pent up demand for credit that expressed itself as a housing boom, to provide necessary shelter and accommodations for the baby boom (frex, me.)

Debt is a problem if it can't be serviced, or if servicing it causes a distortion in standard of living, or spending and saving patterns.  I think it's hard to make a case for those things at debt/salary < 1.  I'm not prepared to set the break point, but it looks like it could very well be between 1.4 and 2.0 - the Shrub legacy.

We should also remember that there are a numerator and a denominator.  Here are the graphs of year over year increase in household debt and salary accruals.  Note the declining trend channel for salaries since the late 70's peak - and the counter-trend move in the 90's.  Other than that, I will leave pondering the dynamics of these changes as an exercise for the interested reader.  And if you've come this far, you might as well give it some serious thought.

So, to answer this question: "The number was increasing rapidly even in the 1950s. Was that Reagan's fault, too?"  I say, no.  In those days, Reagan was only responsible for some really bad movies. But I'll add that the question is irrelevant to my assessment of Reagan and Shrub.   They destroyed the American Middle Class, and along with it the American Dream.  This was no accident, and there's a lot more to the story than just debt.  Supply side economics is and always was a sham, designed to enrich the already wealthy at the expense of all the rest of society.  Look where we are now.  It worked.

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Drowning in Debt

A different pair of data sets tell the same story - with a very similar look - as the last graph in this post.

Here is Total Household Credit Market Debt divided by Total Wage and Salary disbursements - basically household debt by household income.

Via Tux, we find a compelling narrative from M Bouffant about this tragic view of the last 40 years -- "middle class serfdom."  Reagan and Bush II destroyed America.  WASF.

Update:  I posted this in the middle of reading the Bouffant post.  At the end I found out it's a lengthy quote from a New Republic article by Timothy Noah, behind a pay wall.  It appears in the Oct 6, 2011 issue of the magazine.

High Finance Sector Profits Kill the Economy

I was rereading this post today, and came across this statement, with reference to this graph.

"The times of those last three peaks in the quarterly data are Q1-86; Q1- 91; and Q3-01"

I suddenly realized that the last two of those dates occurred along with recessions.  So, I spent more time than I want to admit trying to put recession bands on the graph, using an old version of Excel.  It's complicated as hell, and I didn't get it quite right, but here you go.

Except for the Q1-86 anomaly, every peak in the finance sector's share of total corporate profits lines up with  recession.  I've also put an exponential trend line on the graph to illustrate that the finance SERVICE sector capture has been growing faster than the growth of total corporate profits - which has also had exponential growth.  I had already noted (and since forgotten) that the major peaks (ex-'86) corresponded with recessions.   Now we can see that even minor peaks line up with rcessions, as well.

This indicates the level to which the servant has become the master.  Beyond the point of supplying necessary financing for businesses and mortgages, financial manoeuvrings - speculation in particular, and most especially so with sophisticated derivatives that nobody knows how to rationally value - become rent seeking.  This is a massive misallocation of resources, diverting capital from real investment into totally non-value-added financial tail chasing.

This has given us every recession since WW II.  The cumulative effect is the Great Stagnation.  The most recent crisis is the Great Recession.  It's not clear we can ever hope to recover.  We're screwed.
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