Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

Copyright Notice

Everything that appears on this blog is the copyrighted property of somebody. Often, but not always, that somebody is me. For things that are not mine, I either have obtained permission, or claim fair use. Feel free to quote me, but attribute, please. My photos and poetry are dear to my heart, and may not be used without permission. Ditto, my other intellectual property, such as charts and graphs. I'm probably willing to share. Let's talk. Violators will be damned for all eternity to the circle of hell populated by Rosanne Barr, Mrs Miller [look her up], and trombonists who are unable play in tune. You cannot possibly imagine the agony. If you have a question, email me: jazzbumpa@gmail.com. I'll answer when I feel like it. Cheers!

Sunday, June 26, 2011


Here are a  couple of charts, and less verbiage than I usually spout.

First, Unemployment (population survey) from the BLS.  I've averaged the monthly data to get a series of annual numbers.

This is color coded by president's admin, red for Rethug, blue for Demo.   Also included are term averages for each admin.  The first thing to note is an incoming Rethug ALWAYS gives us an immediate and sharp increase in unemployment -- ALWAYS!.  Obama is reaping what Shrub has sown, but I have no sympathy for him, since he has continued the idiocy, paid no attention to the unemployed, and meanwhile the "Tough Shit" Rethugs have had their way with them.

Ponder that for an hour or a month.

Next, Kennedy-Johnson and Clinton gave us essentially monotonic decreases in unemployment for the entire span of an 8-year term.  Is anyone surprised by this?

Next note that term averages don't really tell the story.  You have to look at the beginning and end points.

Here is a different presentation of the same data.

Busy as hell, I know.  Let's sort it out.  The pink line is an 8-Yr moving average.  The slanted blue line is a linear best fit provided by Excel.  The yellow line is the average of the entire series, with green and red parallel lines one Std Dev above and below.  Speaking of parallel lines, I threw a trend channel bottom across the  1953 and 2006 extremes, and a parallel line projecting from the 1958 top. They are very close to parallel to, and equidistant from, the blue trend line, which I find to be astonishing.

This makes an intriguing picture that tells a very ugly story.

I don't see any way unemployment will ever get as low as 5% again.

A Different Look at GDP Growth Since the 50's

Art posted a bar graph of average GDP growth by decade.  I was struck by the nearly identical performance of the 70's, 80's, and 90's.  Remember the 70's?  Oil price shocks, stagflation, the misery index.  The 80's - St. Ronnie, Morning in America, voodoo supply side economics.  The 90's - Poppy's recession, Clinton's temporary hiatus in fiscal insanity, budget surpluses. 

Decade increments are tidy and convenient, but miss the story told by presidential administrations.  While time marches on, policy matters, and different regimes have different policies - or at least they did until the current administration.

I happen to have average GDP percentage growth rates by president at my fingertips.

It looks like this.

Like Art, I've put a best fit power line on the graph, that tells essentially the same story.  But now that we've separated Poppy from Billy-Bob, and Jimmy from the first Cheney administration, we get some interesting detail.  Reagan is only marginally better than Carter, who makes all other Rethug Presidents look like fools.  Clinton stands over Reagan, and achieved this while balancing the budget - pure Keynesianism!  B. Hoover Obama follows the Shrub playbook on economics and foreign policy, to his and our detriment.

Here is the same data, plotted along with standard deviation.

This time the power trend line is based on the Std Devs.  Yep - there' yer Great Moderation.  I explain it like this:

Big changes in short time spans cause Std Dev to increase.  The biggest variations come from recessions and quick, strong recoveries.   There were three recessions in the 50’s so Std Dev never had a chance to decline.  The 60’s and the 90’s were both recession-free, so Std Dev 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 kept Std Dev high.  The Great Recession took Std Dev to the highest level since the 80’s.  All of the volatility jumps (see detail at the Great Moderation link, above) 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 a period of 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%.  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.

Friday, June 24, 2011

The Life - and Death - of the American Dream

Here is a 10 minute You-Tube video that encapsulates the message of my blog.

UpdateI should point out that this is NOT my vid.   It is from Realitybase Journal.   Source link below. The fact that it encapsulates my message is simply due to the author, Roger Chittum, looking at a lot of the same data that I look at.


What the Hell?!? Friday - Making the Case that Inflation Was a Bubble That Burst

The economic landscape, like the topographical landscape, has different realms.  Just as there are mountains, plains, deserts, frozen wastes and swamps, there are times of prosperity, boom, bust, chaos, and depression.  (This list is intended to be illustrative, not exhaustive, and no specific analogies to topographic features is expressed or implied.)

An intelligent mountain climber does not go to work in scuba gear; nor does one explore the desert in a parka.  Appropriate actions at any given place in time take into account the season, general environment and local conditions.  Austerity at a time of disinflation teetering on deflation is not only stupid, it is willfully ignorant.

Anyway, end of lecture.  Here, I make my case that inflation is a dragon long dead.  Whether Volker actually killed it or not, he was standing there at its side, sword in hand, when it's flame was snuffed.

Illustrating the Bubble.

Commodity Shocks, A key difference, then vs. now. 

Response to deficits, another key difference.


Where we are now.


Reditto.  From Beckworth, referenced here.

I rest my case.

Thursday, June 23, 2011

Where Has All the Money Gone - Part 3 - Dividends

We've already seen that as GDP growth has faltered, corporate profitability has soared.   The next thing to consider is - what have corporations done with all that money.   There is a limited selection set: pay taxes, distribute as dividends, pay down debt, invest, speculate, and hold as cash.

Here is a look at dividends and taxes, through 2008, from this source which cites BEA as primary source.  They divide profit among dividends, taxes, and undistributed earnings with the three totaling 100%.  Here is a graph of these two as percentages of earnings, and it's stunning.  Taxes in blue, dividends in red.

The 1978 inflection point in dividend payout is as sharp as any I've seen in any data set.  The trend lines tell the story.  The taxation picture is not so simple.  The percentage of earnings was above 50% from 1950 to 53, than dropped to 35% in 1965, then generally rose to 43% in 1980.  It's been down, down, down since, reaching an all time low of 21.5% in 2008.   Trend lines through the data sets are not greatly different, though the recent one slants down more.

The percentage dividend payout increase is actually greater than the tax payout decrease.  The net result is a funneling of money from the government into the hands of dividend recipients - and we all know who they are.

This is not only "Starve the Beast" in action, it is a massive redistribution of wealth into the hands of those who already have the most.   Say what you will about the relative efficiencies of the private and public sectors in using resources, the public sector places money into the hands of people who will spend it and keep the economy moving.  The private sector funnels it into rent seeking.

We are SO screwed.

Link of the Day

I don't actually have a Link of the Day feature, but why let that stop me?

Here is Mish, making a whole lot of sense.  As I've said before, he's a smart market guy.  It's his politics (and the economic views that are thusly driven) that are screwed up.

At the link, he talks about dismal stock market scenarios for years to come.   I see no reasons to disagree.

GDP Growth since the 50's

Here is a table of average GDP growth,* by presidential administration, since Ike.

PREZ                                Ave GDP Growth (%)   Std  Dev
Ike                                            2.85                        5.33
Kennedy/Johnson                       5.27                         2.95
Nixon/Ford                                 2.83                         4.44
Jimmy                                      3.31                         5.33
St Ronnie.                                3.47                         3.49
Poppy                                      2.16                         2.36 
Billy-Bob                                    3.85                         2.04
Shrub                                       2.03                        2.09 
B. Hoover Obama (to date)        1.54                         2.89

This is Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product,   Seasonally adjusted at annual rates, last revised 6/24/11.

Wednesday, June 22, 2011

Stagflation in the Modern Age

Stagflation is an unusual economic condition characterized by low growth and high unemployment (stagnation) coupled with generally rising prices and wages (inflation.)  This condition existed, persisted, and worsened throughout the 1970's.  Inflation during the 70's (1970 to 1980, inclusive) averaged a hefty 7.7%, while Real GDP growth averaged 3.2%, which is actually not too shabby, per se.  But - 1970 was an erratic growth year with two dips into negative territory; and both 1974 and 1980 were ravaged by deep, deep recessions.  Growth spurts were steep, but short lived. This roller coaster ride was all whiplash and few thrills.

This is what it looked like, inflation in blue, GDP growth in purple.

The lighter lines are the actual data, the heavier lines are annual averages.   Note the striking contrary motion.

The point of this post is to emphasize how different now is from the 70's.  Real growth over the last 8 years has averaged under 1.8%.  CPI inflation has averaged 2.5%.

Getting the two data sets on a single graph is a real pain in the ass, so here they are separately.

Here is monthly CPI data, with a 12 month average in blue and an 8 year average in yellow.

Here is GDP growth over the same period, with a trend channel.

The two data sets are now displaying something close to similar motion - I believe this is what most economists - or at least the Keynesians - would expect.

Here is the contrast.

High inflation.
Wild gyrations in Real GDP growth, with a moderate average.
Recessions led to sharp recoveries.
Strikingly contrary movement between the data sets.

This Millenium
Low inflation.
GDP growth not changing much, except for the Great Recession trough, and clearly trending down across the period.
Recessions led to tepid recoveries.
Generally similar movement between the data sets.

A criticism against Keynesianism is that it couldn't account for stagflation.  Fair enough.  Does classical economics?  Does Austrian economics?   Not only no, but these schools of thought were rendered obsolete 80 years ago, when they couldn't account for an aggregate shortfall in demand.  What we have now is unlike the the 70's, in every respect I am aware of.

It is not unlike the 30's though. 

This is not a situation where Kenesianism needs to offer anything new.  This is a situation that Keynes understood very well, and the prescriptions that worked the first time around will work now as well.

There is no threat from stagflation. There is no threat from inflation.  There is a real threat from deflation, which is now seeming inevitable, both here and in Europe.

But people everywhere are worried about inflation.

We are SO screwed.

Sunday, June 19, 2011

Labor's Share

Here is a link to the FRED graph of Labor's Share that I mentioned earlier.

I'm going to have a close look, which may or may not lead to any conclusions.

Observations, from the FRED graph:
1 - Peaks.
1-a.  Labor's share is almost always rising immediately before and then into the first part of a recession.  Exceptions are 1949 and 2008. 
1-b.  Labor's share always declines during a recession.  That decline might or might not continue for some time after the end of the recession, but in each case, a recession leads to a new local bottom in Labor's share.
1-c.  Therefore, Labor's share always peaks after a recession has started, and the recession leads into the next cyclical bottom in Labor's share.

Now, lets have a look with a different emphasis.

Here, we have the quarterly data, color coded by President's party, an 8-Yr moving average, and an envelope defined by the averages of peaks and valleys from '47 to '85.

2 - A Secular Change.
2 - a.  Prior to 1985, the oscillations were approximately contained between the values of 104.3, and 110.3
2 - b.  During that period, both D and R administrations were characterized by gyrations.  If anything, the R admins might have fared a bit better.
2 - c. During the period, oscillations of the 8-Yr Avg were damped, stabilized at 106.6 by late 1977, and didn't budge for 8 years.
2 - d.  After that, there was a bit of a decline.

3 - The Great Stagnation.
3 - a.  During the entire Bush I admin and Clinton's first term, labor's share plummeted, broke out of the old channel, and reached a new low of 101.11.
3 - b.  By the end of Clinton's admin, labor's share was back to 107.6 - slightly above the former average.
3 - c.  Since then it's been constant decline, except for a quivvering pause in 2005, the index base for this data set.  The Shrub admin gave us the first near-monotonic drop in the history of the data set.  In many ways, Obama's first term might as well have been Shub's third, so the decline continues unabated.

Here is yet another look.

The average for each president's term is indicated with a heavy horizontal color-coded line.  Kennedy-Johnson and Nixon-Ford are each taken a single admins.  Reagan and Bush I are considered separately.    The average of the entire data set is 105.13, just slightly above Poppy's 104.71

The green lines are 2 standard deviations above and below the moving average, and based on the same 8 year moving data packet

 4 - Slide into the abyss.
4-a.  Through Carter, term averages are between 106.5 and 107.85.  They do seem to be stepping down slightly over time,  but who can say if that means anything?
4-b.  With Reagan, the average slumps to 106.0 - a new low that looks oh, so high from here.
4-c.  Poppy gave us 104.7, Clinton 103.3, but look at that peak at the end of Clinton's term- an 18 year high!
4-d.  Which was obliterated completely and immediately by Shrub.
4-e.  Then came B. Hoover Obama.  Alas and alack.

5 - Data behavior.
5-a.  Despite telling a sad story, this is very well behaved data set, almost perfectly contained by the green lines, which seem to be acting as control limits.
5-b.  Every excursion to a limit results in a rebound that eventually reaches either the opposite limit, or the average line.   The limits really are limiting, and both the moving average and the presidential term averages seem to have some reflective power.
5-c.  After bouncing off the upper limit in '82, the slide to the lower limit took 15 years.  The rebound to the upper limit took only 4 years.
5-d.  But, because of the near-monotonic nature of the slide, the standard deviation had declined from 1.6 to 1.0, so the channel was much narrower on the way up.
5-e.  Standard deviation peaked at 2.5 in 2007, has not gone below 1.8 since, and is now at 2.2 and rising.
5-f.  The data and the lower limit have been clinging vines declining together since Q2-09, with no end in sight.
Decades of low taxes and deregulation have allowed wealth to flow away from labor into profits, which have been misallocated into financial tail-chasing, rather than real investment.  There isn't anything here that we didn't already know.  This is just more confirmation of the real nature of the Great Stagnation.

Father's Day

Here is a picture of my dad with his only son.  Yep, that bespeckeled tyke is the past tense of crusty old Bumpa.   I look to be about 4 or 5 here, which would make it 1951 or '52 - the Truman Administration.  My sister would arrive in '53.

The original was badly off-center, so I cropped the right-hand half, which showed his vegetable garden.  That's right folks, I cropped his garden.  You just can't let an opportunity like that go by.

So many years have
Passed; a man long gone, his son
Looks back . . . across time.

Low Interest Rates and the Rentier Class

I borrowed the title from Philipji, where commenting is not enabled.

Philip, it seems, is an iconoclast who apparently thinks that all theories of economics are wrong.  In principle, I cannot disagree.  This however does not make Philip right.

In the subject post, Philip shows the graph of labor's share of nonfarm business income that Thoma and Frum had recently displayed.  He also shows a graph of the Federal Funds rate, a topic in which I have some interest.   Even an old man in bifocals can see the two lines falling, though not in lock-step.  These are similarly moving secular trends.   He sees cause and effect, and his argument makes sense.

Actually the explanation is quite simple. The entities who really benefit from low interest rates are hedge funds and traders of financial instruments. Typically, they take advantage of mispricings of securities amounting to a few cents. And how do they parlay such tiny mispricings into incomes amounting to tens and hundreds of millions of dollars? By leveraging their equity ten, fifty or a hundred times. And of course they can do that only if money is dirt-cheap. 

Equally important, this hurts the producers of real goods and services who are looking for loans. At present the prime rate is around 3.25%. What self-respecting bank would lend at 5% or even 10% and wait a whole year when they can earn more in just a few weeks by trading in financial instruments? If nothing else, the bonuses currently being paid to bankers should make this obvious -- to all but those rendered blind by ideology.

Again, I do not disagree.  But there is a lot he leaves out.   First, he assumes (I assume) that interest rates are determined by the Fed.   As my post (linked above) indicates, empirical evidence suggests otherwise.  Secondly, he sees low rates as the root cause, where it is really only an enabler.

In my view, the root causes are low taxation and lax regulation.   As I've stated before, futures markets serve a vital function.  The same might also be true of other financial instruments, such as options, but I haven't thought it through and my gut feeling is negative.

If I'm right about root causes, then solutions are obvious: not high interest rates which will hurt everyone who is struggling, but tax and regulation aimed at curtailing the rentiers.   Others have suggested a small transaction tax that will reduce the small gains.  I concur, and also recommend severely limited margin to minimize the effects of leverage, and minimum holding periods, in the range of hours, days, or weeks to eliminate the opportunity to have a dedicated computer respond to momentary imbalances.

To summarize, low interest rates aren't the problem.  They are a symptom of the current economic malaise.  The solution set does not include interest rate hikes, which would send the economy into even more of a tail spin.

While I appreciate Philip's chutzpah  and original thinking, his thinking on this issue stops at the surface.

Wednesday, June 15, 2011

Where has all the Money Gone, Part 1.5.2 - A More Even Closererer Look at Corporate Profits - Finance Sector

In Part 1.5.1, I said this:

I wondered it there was a break point around 1980.  I don't think there was. 

I was wrong.

To make a point about the increase in the Finance share of corporate profits over the post WW II period, I took a 13 year moving average of the data.   This is what it looks like.

6/16 UpdateUnderlying quarterly data is in the thin purple line. Long averages are in green, through 1985, and red from 1986 on.   Upon rereading, I see how I could have caused some confusion, without this information.    I want to be clear, not confusing.  Sorry that this post does not meet that standard.

A long average filters out the hash, and reveals the underlying trend.  Or, I should say, trends, since there are two, with a sharp break at the beginning of 1986.  A trend line on the data through  '85 is a near-perfect match to the average line, which barely even wiggles.  We see a bit more action in the post-85 segment, but the new trend is still very clear, indeed.  The earlier trend line in green is now the lower channel support line. 

Well, as I always say, policy matters.  Was there anything that changed in the 80's that might have facilitated this shift?

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

Monday, June 13, 2011

The Fractalization of the U.S. Dollar - Or - How Obama ruined the Greenback

Here is a chart of the Trade weighted U.S. Dollar Index from FRED with a trend channel  Quite a slide down that mountain since the peak 53 weeks ago.

And look at what that Socialist Obama has done to us in the meanwhile:  Stimulus Package, QE's I and II,  Obamacare.  No wonder the greenback is shrinking!

To put it in perspective here is dollar's performance over his entire term.  The red portion near the peak is the time from Obama's election to his inauguration -- the last gasp of hope before the fall.

See how bad it is?  Down, down, down.

Just for contrast, here is how the policies of the staunch fiscal conservatard, George W. Shrub saved the dollar from the profligate quai-socialist Billy-Bob Clinton.

Well, maybe you ought to turn that one upside down.

Now, for the longest perspective, let's look at the entire data set, starting in 1973.

There - now that you can see the entire picture, it's clear exactly how damaging the Obama administration has been.

You're welcome.

Sunday, June 12, 2011


Thoma reposts a great article on class by Chris Dillow.

This perspective yields answers to three key questions which cannot be answered without the concepts of class and power:
  • why has inequality increased since the 1980s? It’s because a mix of technical change and the emergence of a mass supply of cheap labor from China and India have increased the power of capital relative to labor.
  • why is the pain of deficit reduction falling upon public sector workers and benefit claimants rather than the “rich”? It’s because the “rich” have power and workers and benefit claimants don’t.
  • why did the state bail out bankers but not ordinary workers who lost their jobs? It’s because bankers have power - though the precise source of this is another question.

Usually I'd say go to the source, but the repost is much more readable.  Have a glance at the original and you'll see why.

And that Marx!  What a guy, eh!?!

Another Lie From The Lying Liars at The Heritage Foundation

"Tax Cuts, Not the Clinton Tax Hike, Produced the 1990s Boom"

Well, here is another whopper from one of my favorite conservatard stink tanks.  First, they give us these facts.

In 1993, President Clinton ushered through Congress a large package of tax increases, which included the following:
  • An increase in the individual income tax rate to 36 percent and a 10 percent surcharge for the highest earners, thereby effectively creating a top rate of 39.6 percent.
  • Repeal of the income cap on Medicare taxes. This provision made the 2.9 percent Medicare payroll tax apply to all wage income. Like the Social Security payroll tax base today, the Medicare tax base was capped at a certain level of wage income prior to 1993.
  • A 4.3 cent per gallon increase in transportation fuel taxes.
  • An increase in the taxable portion of Social Security benefits.
  • A permanent extension of the phase-out of personal exemptions and the phase-down of the deduction for itemized expenses.
  • Raising the corporate income tax rate to 35 percent.

And these facts.

In 1997, the Republican-led Congress passed a tax-relief and deficit-reduction bill that was resisted but ultimately signed by President Clinton. The 1997 bill:
  • Lowered the top capital gains tax rate from 28 percent to 20 percent;
  • Created a new $500 child tax credit;
  • Established the new Hope and Lifetime Learning tax credits to reduce the after-tax costs of higher education;
  • Extended the air transportation excise taxes;
  • Phased in an increase in the estate tax exemption from $600,000 to $1 million;
  • Established Roth IRAs and increased the income limits for deductible IRAs;
  • Established education IRAs;
  • Conformed AMT depreciation lives to regular tax lives; and
  • Phased in a 15 cent-per-pack increase in the cigarette tax.

All of which I am going to take on faith.

But the '97 tax cut package so lauded by the HF contains 1 item that might be claimed as helpful to business - the capital gains rate decrease, and 1 item that might be helpful to high income earners, the income limits on deductible IRA's, and one thing that helps your heirs when you die.  There are three items that might be helpful to medium or low income earners, one tax increase, one extension, and a depreciation nuance. 
They present charts of GDP growth and growth in real wages in years 1 through 4, following the 1993 increases and the 1997 cuts.  Well, I know a little bit about GDP growth.   Here's a picture.

Do you see anything striking here?  Sure, GDP growth was higher from 1997 through early 2000.  GDP growth increased throughout Clinton's term - all rather neatly contained in a growth channel that includes most of his term - except for the very end.  And wasn't there a dot-com bubble in there somewhere?  Note that the liars chose a four year span to look at - justified in a way by the four years between the hike and cut events.  But they don't specifically define the starting year for their analysis.  Four years after 2007 was 2001 when GDP growth was dismal.  They certainly did not include that.  Since the Bush tax cuts, the economy has gotten steadily worse.  Some how, they forgot to mention that, either.

You'd think the HF liars would favor policies that help business grow, and be against policies that reduced corporate profitability.  Here is a look at how the Clinton era tax changes affected preceded changes in profits ( a cooked number) and Net cash flow (cash receipts minus cash payments over a given period of time -- a real number.)

Cash flow is in blue, after tax profits in red.I've added horizontal lines coming off peaks in July 1997 - the tax cut year.  Cash flow immediately dropped by 10%, and didn't make a full recovery until 2000.  After tax profits styed down even longer, and didn't fully recover until the middle of '02.

The next peaks with fall-offs occur in '05 for cash flow, and '06 for profits.  You can see what's happened since then.

And all of this occurred in an era when corporate profits have been growing at an increasing rate.   Their entire line of reasoning is bull shit.

Here's the Truth about the Heritage Foundation, and the fact-free Rethug dogma that they generate.  They are about tax cuts -all tax cuts, all the time.  They don't care if a tax cut is good or bad for anyone.  Their religion is tax cuts and no piece of contrary data will shake their resolve.  They cherry pick whatever scant data supports their unfounded claims, and lie because the truth is not on their side.

Update: BTW, unlike the lying liars at The HF, I am not suggesting any specific cause and effect relationships in any of the data presented in this post.  Long range, I do believe the low tax era has put us on a bad economic path, due to both primary and second order effects.  However, I am not suggesting that the 1997 tax cut, such as it was, caused the immediate decline in CF and profits.  Sometimes stuff just happens.

Saturday, June 11, 2011

Where has all the Money Gone, Part 1.5.1* - An Even Closerer Look at Corporate Profits - Finance Sector

Following Art's lead here, I'm looking at the profits of the finance sector as a percentage of total corporate profits, data from FRED.

Art posted a graph like this one (No. 3 at the link.)  I added some trend lines.

For whole data set, there are linear and exponential best fit lines in blue.  Take your pick.  For minima only, indicated with green diamonds, there are linear and exponential trend lines in green.  Again, one may quibble as to which is the better fit.  For maxima, indicated with red diamonds, the exponential line is clearly correct.

Here are the red diamond occurrences. Q2-1949, Q3-1952, Q4-1953, Q1-1958, Q1-1961, Q4-1970,  Q1-1986, Q1-1991, Q4-2001.  The peak in 1986 is the only one that does not correspond to a recession.

Remember, corporate profits have grown at an increasing rate since WWII.  (More here.)

The finance sector has captured an increasing fraction of corporate profits, which have been growing at an increasing rate since WWII.  And the growth rates are greatest when the economy is doing the worst.  This is no accident.   Profits in the finance sector are due to rent seeking.  It's that simple.

The finance sector provides a vital function.  It is there to facilitate and enable the wheels of industry to turn.  What has happened in the age of deregulation and lax taxation is that the finance sector has come to dominate the economy.  This is madness. And here is your Great Stagnation, folks.  I've said repeatedly that the GS is due to misallocation of resources.  Here is your proof.  And we've been here before.  It wasn't good.

Update:  But wait - there's more!

I wondered it there was a break point around 1980.  I don't think there was.  Here we have a linear trend line in dark green for the data through 1980.  It's a lousy fit to the data, of course.  The exponential trend line for the entire data set is shown again in blue.  The exponential trend line for the pre-1980 segment is shown in bright green.  To my surprise, it actually lies slightly above the blue curve.  This suggests that the trend of the pre-1980 portion is a good predictor of the tend for the entire set, so nothing remarkable happened along the way.  Nothing beyond the fact that we have an exponentially increasing portion of an above exponentially increasing amount going to leeches.  No wonder we're being bled white.

Update 2:  Back to the first graph.  What do you make of the expanding envelope - a huge increase between peaks and valleys?  Could this be an indicator of instability?  An exponential increase must eventually be broken in some way - perhaps by a total collapse.  I am seriously frightened.

* Yes this is a screwed up numbering system.  My bad.

Friday, June 10, 2011

What the Hell?!? Friday -- "Unfortunate Choice of Words" Edition

"I'm just putting everyone on notice. A car is not a mobile device," 
--   David Strickland, administrator of the National Highway Traffic Safety Administration.

OK - I know the "mobile" in mobile device and the "mobile" in automobile are pronounced differently, but that's really just a phonetic accident.  First off, a car is definitely mobile.  And a car is most assuredly a device.

In fairness, here are the words that followed:   "I'm not in the business of helping people tweet better. I'm not in the business of helping people post on Facebook better."

And the headline of the article is "NHTSA administrator: Apps must take backseat to auto safety."

So, his basic meaning is that a car is not wireless communication hardware, like an i-Pad or Droid.

But, still . . .

Thursday, June 9, 2011

Where has all the Money Gone, Part 1.5 - A Closer Look at Corporate Profits

If you look at the % change, quarter over quarter in corporate profits since 1947, you get this.

Confusing - no?  One might be tempted to see it as chaotic, random, formless, or a lot of fury signifying nothing.  Let's do what I've done with percent change in GDP data so many time and try to find whatever order may be lurking in the chaos.  The visual problem here is that the size and number of the spikes disguises whatever underlying pattern might exist.  One way to simplify is to take a moving average.

This chart is rescaled and has the same data in the background, but zeroes in on the 21 period moving average.

Now we have something we can make sense of.  The straight blue line is the best fit.  The green line is one I constructed connecting the first and last peaks.  (I'm always amazed by the amount of respect lines like this receive from presumably random data.)

We see -
1)  A positively sloping trend line.
2)  Steadily increasing peaks.
3)  An essentially level series of bottoms, at the 0.00 line.

All of this is consistent with my assertion that the most recent decade has been a remarkable profit generator.  Not the best decade in the entire data set, though.  Quite surprisingly, that honor falls to the 70's!  The two most moribund decades since the Great Depression account for the greatest growth rates in corporate profits.  Make of that what you will. 

4) The peak to peak period is not constant.  In fact, it seems to be increasing quite regularly.  I'll have a closer look at that when I have more time.  For now, it's just an oddity.

The increasing slopes over time we saw here really do mean something.  There are trees in the forest and a careful observed can identify them.

Quotes of the Day -- Afghanistan

I think it was Tux who pointed out that nobody - not the British, not the Soviets, not the Romans - nobody, except Ghengis Khan has ever had military success as a foreign invader in Afghanistan.  And GK's marginal success only came because he was willing to engage in slaughter, wholesale or individually, whatever it took.  

Actually, it was Tamerlane.  The search function works at Tux's place.

But Tamerlane had some advantages we don't have. Tamerlane had no logistics tail -- none. He fed his armies by seizing the food, weapons, and supplies of the peoples he conquered, who no longer needed it because they were, err, dead. Tamerlane was not put off by squeamish notions of killing women and children. If a province defied Tamerlane, he simply turned it into an unpeopled wasteland without bothering to try to kill only combatants. He was by all accounts possessed of an amount of viciousness that make even the Taliban look like Boy Scouts, an amount of viciousness that no army of a would-be democracy could ever countenance because it would repulse too many taxpayers.

Well - that's harsh.  But the reality of Afghanistan is and always has been harsh.

Here's a comment by reporter Chuck Spinney on a current assessment "from an email written by an active duty colonel who travels all over Afghanistan."

[I vetted the colonel's email thru a retired Army officer, and he responded: "I talk to Soldiers and Marines of most ranks on a weekly basis, many of whom have just returned from Afghanistan. Not one says we are winning. They think Afghanistan is a waste of our time. Why doesn't anyone listen to the guys that know? Ivory-tower intellectuals in think tanks get listened to, but they are not walking the ground as a grunt or a combat arms dude."]

Just to be clear, the "Ivory -tower intellectuals" referred to are right winger neocon types, a la the WSJ.

Wasted time, money, political capital, and most tragically, people's lives.  Who gains?  Well, if you need help figuring that out. go read the article.
H/T to the LW.

Wednesday, June 8, 2011

Spending vs Income

I'm not a Freakonomics fan, and don't follow the web site.  (Thinking like an economist about economics is bad enough. Thinking like an economist about other stuff leads to ideas like combating global warming by shielding the atmosphere with clouds of sulfur dioxide.)  But this post, circuitously via Krugman, via Thoma, by Justin Wolfers is interesting.   And it is about economics.

It illustrates the differences between spending based GDP (the usual measure) and income based GDP.  In a perfect world, they are equal.  Oh, well.  The graphs tell the story.  Go read the post.

Here are the conclusions.

1.      The slump began in late 2006. And indeed, we were hardly enjoying good times through early 2006.
2.      It’s a big slump, and GDP per capita fell by over 7 percent.
3.      We remain a long way below the previous peak.
4.      It’s going to take a long while to return to where we were back in 2006. Most forecasters are expecting GDP to grow by around 3 percent, implying per-capita growth closer to two percent. At those rates, average incomes in 2013 will (finally!) be back around the levels of 2006.

Finally, it’s worth emphasizing another key statistical finding from Nalewaik’s research: Over the next few years the Bureau of Economic Analysis will continue to revise their estimates of what has happened, and if history is any guide, their revised estimates of the blue line will look a lot more like the red line.

Not only are we poorer than we have to be.  We're poorer than we realize.

Quote of the Day - "Modified Limited Hang Out"

Actually a portion of a conversation, with three participants, and context supplied by Johnathon Bernstein, in comments at his own blog.  I hope you know which President is involved.

PRESIDENT: You think, you think we want to, want to go this route now? And the--let it hang out, so to speak?
DEAN: Well, it's, it isn't really that--
HALDEMAN: It's a limited hang out.
DEAN: It's a limited hang out.
EHRLICHMAN: It's a modified limited hang out.
PRESIDENT: Well, it's only the questions of the thing hanging out publicly or privately.

For those craving context: the question, as it had been from the start, was how to confess to enough to satisfy critics without confessing to things that would send them all to jail. Thus "let it all hang out" means confessing to everything...but every time they consider doing that, they immediately realize that it isn't actually a viable strategy. So a limited, or modified limited, hang out.

BTW, this is why the cliche that it was the cover-up, and not the crime, that was the real problem with Watergate; had there been no cover-up, they would have all been confessing to multiple felonies. Including the president.

Hmmmm.  So that rat really was a crook.


Where Has All the Money Gone - Part 2

Part 1 gave a hint at an answer (corporate profits.)  This post re-emphasizes the question.

The graph shows Real GDP/capita and Real Disposable Income/Cap since 1950 on a log scale.  (Data through 2009, from The Census Bureau. Table 678 at the link.)

I've left the 50's out of the argument, as a courtesy to Ike, since his relative performance suffers due to the post war baby boom - Ye Olde Denominator Thang.

If you've been paying any attention, you know there are break points in almost any econ measure, somewhere in the vicinity of 1980.  The trend lines here tell the same story - it's deja vu all over again.  BTW, I stopped both post '80 trend line data sets at 2007, to avoid the influence of The Great Recession, which would have have further deceased their slopes.

What I want to emphasize here is the difference between the two lines.  Though both have a knee, the Disposable Income break is much sharper.   Here is a graph of the difference between the two, linear scale.  And, BTW, this time I left the '08 and '09 data in the trend line determination. 

Well - since 1980(-ish) not only has GDP growth slowed, the amount captured in disposable income has decreased, quite dramatically.

That's a whole lot of wealth that is NOT ending up in peoples' hands, wouldn't you say?

Do you have any helpful thoughts?

Bush Tax Cuts and a Quote

The 10th anniversary of the Bush tax cuts has not passed unnoticed.  Via Thoma, follow this link to the top five charts, demonstrating the effects of these cuts.  Not so pretty pictures, but definitely worth a look, if you are reality-based.  Even more so if you aren't, I suppose.

Here's the narrative:
Tax cut benefits strongly tilted toward the top earners, making over $1 Million.
The Tax cuts did not spur growth in either employment or GDP.  (But, of course, you knew that.)
The tax cuts plus the economic downturn drive record deficits.
The cost of extending the cuts for upper income taxpayers roughly equals the Social Security shortfall, over 75 years.

And yes, the data supports every bit of it.

Update:  At the CBPP link, commenter Jim Kainz adds this.

The “secret” $600 trillion Derivatives Market which most Americans have never heard of presents an opportunity to pay off the National Debt without cuts to Medicare benefits. A small 0.5% transfer fee when these billion dollar contracts execute would raise over a half trillion dollars yearly in addition to any other deficit reductions we take. See “How to Pay Off the National Debt” by Kainz on amazon or barnesandnoble.com.

Tuesday, June 7, 2011

Tell Everybody You Know

Here.  I'm doing my part.

What about you?

What A Weiner

I generally avoid commenting on headline news items, and, even more diligently, the gossipy stuff.  But I'm going to break protocol here and talk about Anthony Weiner.  The simple fact is, I'm disgusted.

First off, I'm not a prude.  I care no more if people swap candid photos of their genitalia, precious bodily fluids, or even their mates, than if they swap baseball cards.  It's their business, and not mine. 

Second, this event strike me as being rather tragic.  I've seen Weiner (but not THE weiner, since I  haven't and won't go in search of the alleged lurid photographs) several times and he always displayed himself (so to speak) as intelligent, perceptive, and something close to a true progressive.

The thing that disgusts me is the stupidity of the actions - especially coming from a non-stupid person.  I know smart people sometimes do dumb things, but this was a pattern of activity with very little upside gain (I presume) and enormous downside risk.  What this indicates is a profound lack of judgment, in two separate ways.  First, this is the kind of behavior you might expect from a High School Sophomore, not a grown, recently married man with responsibilities.  Second, it's Twitter, for God's sake.  Did he expect that anything he said or did on that platform could possibly stay under cover?  Besides, there was just a similar event involving another congressman.  This is the sort of thing tabloids live for.

Another troubling thing is that this behavior violates his marriage - and he's a newlywed.  As I said, I don't care what sexual practices people engage in.  Notably, though, the wife was not present when he finally owned up to his actions in public.  And I realize shit happens.  But when one has a pattern of behavior that blatantly and recklessly violates marriage, one violates a trust.  That makes one untrustworthy.  And then he tried in an ineffective, half-assed way to weasel out of it for several days.  (That worked oh-so-well for Billy-Bob Clinton, lo, these many years ago.) That makes him, if not an actual liar, at best a half-assed weasel.

An untrustworthy, half-assed weasel, lacking in judgment.

That is why I think he is unfit for public office, and should resign immediately.

There's another possible nuance here, as well.  Since I haven't followed the story closely I don't know the relationships he's had (if any) with the recipients of the subject tweets.  But there could be an element of sexual harassment involved (though probably not with the porn star.)  I'm not making that accusation, since I don't know the details.  But it is an open question that needs to be resolved.  If there is harassment, then beyond all of the above, he would be a despicable human being.  I hope that is not the case.

 Untrustworthy ass-hat weasel is really quite bad enough.

Monday, June 6, 2011

Where Has All the Money Gone - Part 1

Art thinks corporate profits are linear over time, on a log scale, indicating a steady growth rate.

I disagree.

Here is the subject graph, data from FRED.

Art: "Some wiggles, but pretty much a straight line since the mid-1950s. Subject to interpretation, of course. But I'd say that the last decade is not extraordinary. It looks extraordinary on Graph #1, but it is just part of the exponential curve."  Graph #1 is at his post.  Same data, linear scale.

Me:  Subject to interpretation: here's mine.  I think the straight line skews ones vision into thinking it's real  I see a curve, even with wiggles, that has increasing slope over time.  Let's parse this out in chunks and see what happens.  I'm suggesting that if the data were truly linear, mining it in even the most favorable, cherry-picked way would not reveal any kind of trend.

Instead, we see this:  Time segments with trend lines.

It's busy, but let's sort it out. Pink segment is 1947-60.  Yellow is 1961-70.  Light blue is 1970-90.  Purple is the 90s and red is the naughts.  Slopes increase steadily over time.  The best fit purple line includes data from 90 to now.  Yellow, blue and purple slopes are not dramatically different.  The red segment slope, however, is.  Despite topping out in the middle of '06, taking a nose dive, and only making a recent new high by the slimmest of margins, the last decade has a dramatically different slope than any other time.  And this is on a log scale!

For context, remember what has happened to GDP.

GDP growth has led to a series of decreasing slopes, while corporate profits have led to a series of increasing slopes.

As I commented to Art:  "But the truth is that Corporate profits really have soared while the rest of us have suffered. Indeed, there is a huge shift, starting in the mid 80's, of all times.  And there is your great stagnation."

I think I nailed it.

Sunday, June 5, 2011

What Was The Great Moderation?

The basic idea of The Great Moderation is that the standard deviation of GDP growth was much less during the recently ended moderation period - roughly mid 80's until the onset of The Great Recession than it was during the previous golden age.

This idea is not totally without merit, but let's give it a hypercritical look.  Here is the graph (first presented here) of Standard Deviation of GDP change, based on a 34 quarter data packet.

Here is the 34 period line again (blue), shown this time with Relative Std Dev (red), determined by dividing the St Dev value by the average of the same 34 data points used to calculate Std Dev.  In the chart it's been multiplied by 3.5 to put it on the same scale as the basic Std Dev line.

Each set also has a best fit straight line added.  Sure enough, they both slope down.  The Relative St Dev (RSD) has somewhat lesser slope, but this pretty much blows my theory that the Great Mod was a data artifact of declining GDP growth, though that still appears to be a minor component.

On the other hand it validates my idea that there were two little moderations during the late 60's and the entire 90's.  The 3Q '69 minimum in RSD  is well below the average value of the Great Mod, and the average of the '66 to '73 period (2.93 on this scale) is only marginally above the average of 1990 through 2007 (2.46.)  There was even a mini-moderation during the Carter presidency, prior to the huge spike in Q2 '82.  The remainder of the Reagan administration maintained an RSD value almost as high as that of the Great Recession.

Though I've couched this in terms of presidential administrations, I'm not prepared to say that there is a cause and effect due to policy.  I will say that extended recession-free periods lead to lower RSD.  The three peaks follow major recession by a year or two.  Not every recession causes a spike, but the '69 and '74 recessions did run up the RSD value, though the '90 recession did not.

I think this does validate my notion that the volatility of the golden age totally resulted from two phenomena - the post WW II readjustment to a peace-time economy, and the Stagflation of the 70's.  Rather than something remarkable, the Great Mod might just be a return to relative normality.

Does this seem sensible? Help me out, here.

Friday, June 3, 2011

Hoisted From Comments - The Repugnicant Master Plan

In comments here, Art points us to STARVE THE BEAST, a 2007 article by the ever-surprising Bruce Bartlett.   Holy Yikes, what a find!

Bruce lays out the entire Rethug strategy to basically destroy the America we have lived in for our entire lives.


Not only are we totally screwed, the screwing has come from Repugnicants.

It is all part of a master plan. In "Starve the Beast" PDF (2007) Bruce Bartlett wrote:

In the 1980s, public-choice theory developed the idea that a conservative government might intentionally increase the national debt through tax cuts in order to bind the hands of a subsequent liberal government...

Perhaps a future fiscal crisis will provide political cover for massive cuts in entitlement programs that would be politically impossible except in such dire circumstances.

It seems everything is going according to plan.

An attentive observer will have noticed this being played out over the decades.  The only real surprise here is that there is a conservative with enough honesty to to lay it all out with unabashed lucid candor. As I write this, I've only read to the middle of Page 2, but could not wait to get it up here for the whole world (he said in a self-aggrandizing, but nevertheless ironic way)  to see.

Now I can update my indictment:

Not only are we totally screwed, the screwing IS DELIBERATE, and has come from Repugnicants.

Just think about this.  Now the apparent insanity of cutting taxes while going to war makes perfect sense.  Now all of this makes perfect sense.  Not only have they done this to us, they have waged an unjust and unjustifiable war, compounded that by committing war crimes, destroyed the infrastructure of a sovereign nation, and shredded the Constitution.

This is treason.  Think about that, as well.

Huge H/T to Art.

Wednesday, June 1, 2011

The Best Investment Right Now

Dollar Bills.  If you only have limited space, then consider Thousand dollar bills.  They make a smaller stack.

I'm not joking.  While wandering around at Washington's blog, I tripped over this, picking up on a Bloomberg post.

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said ...“Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in writedowns and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008.
Jeffrey Gundlach notes that we've still got a quadrillion dollar derivative overhang which dwarfs the size the of real global economy, the government hasn't done anything to fix the basic problems in our economy, and so we'll have another crash

Global GDP is about $65 Trillion.   Even times 10, that  doesn't quite get us to a quadrillion.

This simply dwarfs all the other overhangs out there, including housing and private debt.

Remember how screwed I said we were, just earlier today?  It's way worse than I even imagined.

Worse Than the Great Depression?

Washington's Blog has a long post on the current economic downturn, cross-posted at Naked Capitalism.  You often hear that it's the worst since the great depression.  It may well be the worst ever.

I'm not going get into extensive quotes.  You can go to the source, and you should for all the information, quotes, links  and eye popping charts.  I see Suzan has picked up the whole post, as well..

But I do want to embed the two videos.  The first shows a lot of non-agreement among CNBC financial talking-head types, from this morning's live action on the market floor.  BTW, the DJI finished the day at 12,290.14 down 279.65.

The second is an excerpt from a recent 60 minutes episode that shows that things are so much worse than you might realize.

There's lots more at the link.  Read it and weep.

I will quote the wrap up at the end.

Two fundamental causes of the Great Depression, and of our current economic problems, are fraud and inequality:

There are, of course, other reasons the economy is still stuck in a ditch for most Americans, such as encouraging too much leverage, bailing out the big speculators, failing to break up the mammoth banks, and failing to spend wisely, where it will do some good. See this and this. But fraud and inequality were core causes of the Depression, and our failure to address them will only prolong our misery.

Republicans, All Wrong, All the Time, - Pt 29: Moron More On That Deficit Thang

Randi Rhodes had a right righteous rant on the radio yesterday about the deficit.  It belongs to the Republicans.  I went on a quest this morning to track down some of the background information.

The components are base Pentagon budget, wars, homeland security, the Bush Medicare Prescription plan, TARP,  and the Bush tax cuts.  That's all on top of the Reagan legacy of $1.8 trillion.

Here is the military and security portion since 2001, totaling about $8.2 trillion.  This truth-out article puts it in perspective.

I couldn't find total cost to date for the Bush prescription drug plan.  But for 2009 alone it was over $60 billion - way under original cost estimates!  A simple minded estimate of $360 billion since 2006 should be in the ball park..  The tax cuts link below pegs it at $272 billion.

TARP was originally slated at $700 billion, though it wasn't all tapped, and, presumably, most of it will be payed back, eventually.

The Bush tax cuts, with the B. Hoover Obama extensions total $2.8 trillion.  As this link points out, the actual dollar value estimate contains a lot of what-ifs.  The most favorable estimate is $1.3 trillion.

Using the favorable estimate, and eliminating the TARP contribution, I get a total of $11.6 trillion from these items.

Another $730 billion can be added to that total from the revenue shortfall resulting from the recession.  I took the 2006 to 2008 average of Federal receipts as the base line, and determined the shortfall from 2009 and 2010. Data source.  Now we're at 12.3 trillion.

Of course, the '09 and '10 deficits are inflated because government expenses rise during a downturn, so the deficit gets a double hit.  Remember also that the cause of this downturn is a shortfall in demand resulting from decades of Rethug economic policies.

As an aside, interest on the Rethug generated national debt has totaled $3.4 trillion since 2001.

The way I summed it up about 6 months ago still holds.

To recap, here is my narrative:  Throughout the 20th century and up to now in American History, there have been two main causes of large federal budget deficits

1) Wars, and war-equivalent (frex: Star Wars) spending on the military.   Military expenses
in a single year are now in the range of  the total cost of WW II, in constant 2005 dollars.   And we are not fighting the Wehrmacht!

2) Tax cuts.

And we should add 3) Revenue short-fall due to a depressed economy at a time of record corporate profits.  That in itself should tell you how massively screwed up things are.

To be blunt, spending on domestic social programs has NEVER been a significant contributor to deficits, except during the original Great Depression, when they were actually quite modest.

Here is a different view of the numbers.  I don't go along with all of the text, but the graphs tell the story vividly.

Bottom line:  Not only are we totally screwed, the screwing has come from Repugnicants.  Same as it ever was.