What about the past and future effects of the economic stimulus?
Summary: Yesterday we examined the condition of the US economy. Today we look at a major driver of our prosperity, and what might be its long-term effects.
Stand by for a boom!
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Contents
- How we got here
- What do we have to show from 5 years of massive stimulus?
- Why continue the stimulus?
- Putting the stimulus in perspective
- For More Information
- Another perspective
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(1) How we got here
In December 2007 the US economy fell into recession. In February 2008 President Bush signed the Economic Stimulus Act of 2008, with an estimated cost of $12 billion in 2008. Many such bills followed in the five years since then. The Fed pitched in, taking the Federal Funds rate from a peak of 5.25% in June 2006 to effectively zero in December 2008 (the ZIRP, Zero Interest Rate Policy) — where it remains today.
Plus there have been a wide range of other measures, conventional and unconventional, by various government agencies (eg, Treasury, FHA, SEC, Federal Reserve).
(2) What do we have to show from five years of massive stimulus?
(a) Since 2007 America has had one of the strongest economies in the developed world. This includes record high corporate profits, a slow steady rise in jobs, and rising incomes for the 1%. But it has not come for free; it cost $6.4 trillion in new Federal public debt since the recession started in December 2007. That’s a 225% 125% increase in the debt (a double in size), $1.2 trillion per year.
(b) The many powerful Fed actions, with few parallels in modern history for their magnitude and duration, have had a felicitous effect on profits of the Fed’s primary clients: the banks. Mission accomplished!
A status report on the US economy. What lies ahead for us?
Summary: Today we again look at the US economy. What’s happening? What does it tell us about the future?
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Recent US economic data is confused far more than usual. For several months we have seen contradictory economic statistics (more so than usual). The economic signals different drastically in magnitude, and often directionally as well.
- US GDP for Q4 was unchanged (ie, -0.1% annualized).
- Several Fed surveys were weak in December (eg, Chicago National Index).
- Two US consumer confidence surveys were released: one fell in January , one rose.
- The Chicago regional and national ISM purchasing manager surveys for January were strong.
- January’s employment report: household survey shows almost no job growth in Dec & Jan, the establishment survey shows a steady but slowing rise (+247k in Nov, +196k in Dec, +157k in Jan).
- The four economic indicators used by the Business Cycle Dating Committee’s National Bureau Economic Research all show continued slow growth (a pick-up from the Fall slowdown).
The global picture is just as confused.
- The OECD’s Composite Leading Indicators (best of the bunch, IMO) showed slow growth in November, as it has since Summer 2011.
- China two PMI’s for January were released: down a little and up a lot (HSBC).
- The global manufacturing purchasing manager index (PMI) was up slightly in January, and has been flattish for over a year.
- The PMIs for the peripheral nations of Europe remain in a contractionary spiral (eg, Greece, Italy, Spain) — and some others as well, such as France.
About the future
Most economists make the smart bet, predicting that both the US and world economy will continue to grow slowly (ie, things in motion continue in motion).
Voices from the past describe the coming New America
Summary: Perhaps the most difficult aspect of the future is to convey the fantastic range of possibilities. Peoples’ minds rebel even at scenarios which are mundane, even likely, from a historical perspective. Let’s open our minds for a minute, and contemplate the possibility that what happened in the recent past can happen again — no matter how dark.
A symbol of unity for nations of the past and perhaps the future.
Colonel Stok (Soviet secret police): “These Germans, sometimes I wonder how we managed to beat them.
Vaclav (Czechoslovakian secret police): “The Nazis?”
Stok: “Oh, we still haven’t beaten them. The Germans, I mean.”
— From Len Deighton’s Funeral in Berlin (1964)
Echos from the past
To anyone with a knowledge of history, the political speech of America today echos with familiar tunes about the third way between Left and Right: fascism. It remains an attractive (to many) modern ideology when stripped of the NAZI madness — the anti-Semitism, racial purification, and the final solution. As both the Left and Right show signs of decay — insularity, doctrinal rigidity, indifference to contrary facts (visible only to their opposition, not themselves), the third way might gain a mass audience. As it did in the 1930s.
Economic hard times (as in Japan and Europe) will help. As it did in the 1930s.
Since few Americans know much about fascism, we can look to 1930s Italy for a lesson. In the London Review of Books Richard Evans reviews two new books about those times.
Duggan {gives} a general history of Fascism that for the first time treats it, not as a tyranny that allowed ordinary Italians no possibility of expressing themselves freely, nor as the brutal dictatorship of a capitalist class that reduced the great majority of the country’s citizens to the status of victims, but as a regime rooted strongly in popular aspirations and desires. … Italy’s new Fascist unity ‘of descent, of religion, of tongue, of customs, of hopes, of ideals’.
… the Leader bridged social, cultural, generational and regional differences to help bind the nation together.
Of course, there are opponents to even the most idyllic State. Fascist Italy built machinery to suppress these malcontents. Just as Bush and Obama are doing today (technology allows domestic surveillance at lower cost, with far fewer people). Here’s what we can look forward to if we continue down this path:
Deflating the housing bubble – an update
Summary: Since the first post here about the housing crisis in December 2007, it’s been described here as not just a central piece of the economic weakness but a illustration of our political dysfunctionality — our inability to use a crisis to identify structural weaknesses and generate the pressure for their reform. Here’s an update about the core element of the problem: the excess supply of housing built during the bubble.
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Contents
- All those empty homes
- Absorbing the excess homes
- Demographic headwinds
- Leave a comment
- For More Information
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(1) All those empty homes
The Federal government has applied a fantastic array of programs to stimulate housing demand. A tax credit for first-time home buyers. Rates have been forced down to absurd levels. The Federal Reserve has purchased almost a trillion dollars of mortgage-backed securities. The Housing Finance Agency has become the nation’s largest subprime lender. And the Federal government in some form backs aprox 90% of all new mortgages (source here).
As a result some of the excess housing stock has been worked off during the past four years — used or destroyed. Today’s Census Housing Vacancy Survey for Q4 of 2012 shows us how far we’ve come. And how much remains.
Percent of housing units vacant (looking at Q4 numbers)
- Trough: 10.7% in 1993
- Average 1987 – 2006: 11.5%
- Peak: 14.5% in 2008 & 2009
- 2012: 13.5%
The vacancy rate peaked at aprox 3% above the long-term average, and after four years is still 2% above the average. When vacancies drop below the average then prices rise and construction booms — in a free-market economy.
Summary: Martin van Creveld discusses a timely topic: “To Wreck a Military“, Small Wars Journal, 28 January 2013. He describes the likely results of employing women as soldiers, no matter how politically and ideologically necessary. Here we examine his claims, however impolitic. His record of successful forecasts is unmatched in length and breadth by any living military theorist (including those who have mocked his predictions).
By José M. Osorio, Chicago Tribune
Contents
- Why DoD now allows women in combat
- How expensive are women soldiers?
- What effect on unit cohesion?
- Protests by soldiers about change
- MvC’s other works about women soldiers
- Other posts about women soldiers
- Leave a comment
- About Martin van Creveld
- Trailer to “GI Jane” (1997)
Photo: Staff Sgt. Jackelyn Walker fights Pfc. Gregory Langarica in the first round of the bantamweight championship of the finals of the Fort Hood Combative Championships on 16 February 2012 (LA Times story).
(1) Why DoD changed the rules to allow women in combat
DoD’s mostly-male leaders have not suddenly become feminists. They bow to the necessity of numbers, seeing changes in the pool of potential recruit that will make finding the necessary manpower increasingly difficult in the 21st century. Demographics: fewer young men. Obesity and drugs (including Ritalin and Prozac): fewer eligible young men. Cultural changes: fewer educated young men willing to join the military.
For links to studies about the difficulties of military recruiting see sections 5 and 6 of the FM Reference Page An Army near the Breaking Point – studies & reports.
Allowing gays increases the numbers by a few percent. Allowing women to join and advance doubles the size of the recruiting pool (more than doubles the pool of officers, as women comprise an ever-growing fraction of educated young people). It’s an old story — which might have a surprise ending. Van Creveld points us to Job Queues, Gender Queues: Explaining Women’s Inroads into Male Occupations by Barbara F. Reskin and Patricia A. Roos (1990):
Women’s increasing share of the labor force and the pools from which employers recruit workers (such as M.B.A.’s) contributed to.their movement into some male occupations, but unless circumstances impelled employers to hire women, the increased supply of women would not have been sufficient to feminize these male occupations.We must remember that women’s growing representation in the specific labor pools was largely a response to employers’ need for workers in occupations that were more attractive than those to which the gender queue customarily relegated women.
Opportunities beckoned, and women responded. Important in persuading women to study pharmacy, systems analysis, accounting, journalism, and financial management was their confidence that antidiscrimination and affirmative-action regulations and public opposition to discrimination ensured that jobs would await them when they had finished their education. Moreover, as larger numbers of women pursued sex-atypical jobs, their presence stimulated “natural” forces that fostered the employment of even more women: jobs’ sex labels and employers’ preferences changed; women recruited more women through their informal networks; and some men fled or avoided feminizing jobs, increasing employers’ reliance on women — and potentially leading to resegregation.
Corporations have shown that women thrive in rule-based hierarchical organizations, and the military is the extreme case. Following this pattern, as more women join the military they will reshape the military so it becomes more congenial for women. After a generation or two the military might look radically different than it does today. We can only guess how well this new military will perform.
(2) How expensive are women as soldiers?
Our 11 years of wars give DoD ample data on the equivalent costs of men and women as soldiers. Although DoD keeps the results secret, available evidence suggests that women are far more expensive soldiers than equivalent men. Van Creveld points out three kinds of higher costs:
