Tag Archives: government debt

The March jobs report shows continued slow growth, bought at great cost

Summary:  The news media focuses on the month-to-month changes in the jobs report, which consist mostly of noise. Strong months confirm the optimists; weak months confirm the pessimists. The trend of growth remains the real story, with the US economy near stall speed — supported only (like the other developed nations) by massive multi-year fiscal and monetary stimulus. Slow growth bought at great cost. A cost we cannot long continue to pay, borrowing and squandering the money ($ which instead could be rebuilding America). Just like Japan since 1989.

Contents

  1. Conclusions
  2. About the recovery
  3. Household survey
  4. Establishment survey
  5. Unemployment
  6. Other important metrics
  7. For more information about US economy

(1)  Conclusions

Here we examine the March employment report from the Bureau of Labor Statistics.  They conduct two surveys: one of households, one of businesses.  They are not directly comparable, each giving different perspectives on the US economy.  This report paints a picture consistent with the many other streams of information about the economy: slow growth. Slowing slow growth, as shown by this from ECRI:

From ECRI, 5 April 2013

From ECRI, 5 April 2013

(2)  About the recovery

To understand the jobs report one must first understand the recovery of which it is one aspect:  during this period the government’s public debt increased $1.1 trillion — 6.8% of GDP (see debt here and GDP here), one of the higher fiscal deficits in the world.  Our shiny recovery results from massive borrowing and spending.

In other words, organic growth has not yet resumed.  The US economy has stabilized and slowly improves only due to the massive “drugs”  of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down).  Both have severe side-effects, which at some unknown point in the future will become problematic or untenable.  But the worst side effect was unexpected:  the stimulus eliminated pressure for reform.  We have had the New Deal stimulus without the New Deal reforms (some of which failed, but the others laid the foundation for the great post-war boom).

(3)  The Household survey

The Current Population survey is a simple survey of households, with large error bars but no revisions.  It’s worth watching because it’s the basis for the headline unemployment rate, it gives some useful data not in the more-accurate business (establishment) survey, and because some research suggests that the household report shows inflection points before the establishment survey.

Here are the numbers, in thousands, not seasonally adjusted. Note that 1/3 of the new jobs during the past year are part-time jobs.

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Cacophony about Social Security shows our real political dysfunctionality

Summary: Here we have a wonderful example of the cacophony that takes the place of political debate in the New America, in this case about Social Security. It’s one of the simpler issues facing us: a moderately predictable and fully controllable stream of benefits vs. government revenue — mostly income taxes; some graduated (“income taxes”) and some flat (FICA tax on wage income). Our difficulty understanding it provides a dark omen of our ability to handle our larger problems.  This post complements yesterday’s post about our difficulty seeing how the jobs picture has changed.

Cacophony, from Necromancer

Cacophony, from Necromancer

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Contents

  1. Cacophony on ABC about SS
  2. Senator Johnson was quite right
  3. Paul Krugman explains
  4. Simple Facts about SS
  5. For More Information

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(1)  Typical cacophony on ABC about Social Security

Excerpt from transcript of This Week With George Stephanopoulos, ABC, 10 March 2013

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PAUL KRUGMAN: Is it a condition of any Republican support that you have to go for really terrible policies? Because raising the Medicare age is a terrible policy. It raises medical costs, it does very little to improve the budget. It introduces a lot of hardship. Means testing in Medicare is a better policy. I don’t particularly like it, but it’s a better policy. There are other things you can do, other ways you can cut. Even I don’t like the business about changing the price index for Social Security, but that’s not as bad …  (CROSSTALK)

RON JOHNSON (R-WI): To say that the Republicans haven’t done anything is just false. The House has actually passed budgets. With bipartisan proposals to try and save Medicare. The Senate hasn’t passed a budget in over 4 years. Listen, unless we do something, these programs are going broke. It drives me nuts. When I hear people say that Social Security is solvent to the year 2035, it’s not.  (CROSSTALK) In the next 20 years we’ll be $5.1 trillion more in debt than …  (CROSSTALK)

STEPHANOPOULOS: Let me put a version to George Will’s question to you then. If the president went along with either means testing of Medicare beneficiaries, more far reaching, he’s done a little bit already, and also adjusting consumer pricing index for Social Security recipients, would you as a Senator be open to more revenues?

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Portraits of a nation in decline. An unnecessary and easily fixed decline.

Summary:  Many important stories can be told simply, sometimes even in pictures. So it is with one aspect of America’s decline. Our decisions and the results are easily shown in this post. Fortunately we hold elections every two years, should we wish to organize and change the direction of America’s public policy — and put America back on the path to prosperity.

It need not be like this.

Contents

  1. A portrait of a nation in decline
  2. Another portrait of a nation in decline, showing the cause
  3. Here we see madness
  4. Portrait of a well-managed rival
  5. For More Information

(1)  A portrait of a nation in decline

Here we see a sinkhole in bankrupt Harrisburg PA (story here), one of the worst among the many America cities unable to pay for maintenance of their infrastructure.  Since many cities underfund their infrastructure, this will become an increasingly common story during the next decade.

By Donald Gilliland, The Patriot-News

By Donald Gilliland, The Patriot-News

(2)  Another portrait of a great nation in decline

This graph shows non-defense public investment by local, state, and Federal government as a percent of GDP. This underfunding is what allowed America’s once fine infrastructure to decay into the shabby decay that one sees today across much of America.

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Another way to look at the national debt. More comforting, less scary.

Summary:   Today we have one example from the flow of comforting words about the government’s deficits. While pleasant reading, written by a knowledgeable expert, it does not withstand close scrutiny.

Government expert at work!

Government expert at work, keeping us warm.

One of the great oddities of history is why nations adopt policies that were so obviously doomed to failure, or even disaster. It’s a long list, from 17th C economist John Law’s managing the debt of France with the Mississippi Company (latter known as the Mississippi Bubble), to Japan declaring war on almost everybody.  For good reason Barbara Tuchman named her greatest history book The March of Folly.

There are two constant elements of these stories.  First, warnings from experts. Second, assurances that these obviously crazy policies this time would end well.

So it is with the US government debt. We have all heard the warnings. As the debt grows, so do the volume of those saying not to worry. The economists of the Keynesian mainstream provide one form of comfort (fix the deficit later).  The economists of the Modern Monetary Theory school provide another form (debts don’t matter, until they cause inflation or a currency collapse).  A third group provides a vague form of comfort. An example of this is “Another way to look at the national debt” by Zachary Karabell (President of River Twice Research), special to the Washington Post, 8 February 2013 — Opening:

Welcome to the next chapter of the endless debt debate. The release of a Congressional Budget Office report on the next 10 years of the U.S. economy ends a brief lull in Washington. As we return once again to our regularly scheduled program of “Crisis and Impasse,” let’s take a moment to consider the following heretical idea: We have no debt problem.

We have spent years demonizing debt, and now have an entire political movement dedicated to the proposition that government debt will destroy America as we know it unless something is done now!

Stand by for a debunking of fears about the debt! I feel better already. The next line starts the analysis:

Yet debt is simply a new form of currency that is issued, bought, priced and sold like any other currency …

This is false. First, government debt (eg, 30 year Treasury bonds) are not currency in any meaningful sense. They vary in price (currency is the standard of measurement for asset prices, like bonds).  More important, although the government can convert debt into currency by printing money (ie, monetization) the process is not automatic.  It is a political decision to inflate away the value of the nation’s loans.

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Let’s watch a great nation’s wealth burn away

Summary:   Part of our year-end national festivities should be looking at the deterioration of the Federal government’s finances. Especially since the resolution of the fiscal cliff follies shows that neither party in fact cares.  There are few deficit fighters, mostly arsonists.  As for spending our money, it’s burnt for political profit and private gain. Here we review the damage, put it in context, and consider an alternative.

20121130-debt-man

Contents

  1. Deficit = our love of spending + reluctance to pay
  2. The alternative
  3. More details: the debt, and our liabilities
  4. Comparing us to our peers
  5. For More Information

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(1)  Deficit = our love of spending + reluctance to pay

One measure of the Federal deficit is the increase in the government’s public debt (ie, net debt — that not held by the social security trust funds).  In 2012 the debt grew $1.1 trillion to $11.6 trillion (that’s our gross debt).

That’s a large number, but tells us little.  More useful is to compare it to our national income: the deficit is aprox 7.2% of 2012’s GDP, the debt is 73% of GDP.  Also important is the rate of growth: it grew by 11% in 2012.

See the numbers for yourself: the US Treasury website shows the Federal debt for everyday from 1993.

What did we get in return? Prosperity, one of the strongest economies among our peers. But like last winter’s snow, only an ephemeral gain. The failed hypersonic cruise missile, the insanely expensive F-22 and F-35 fighters, the massive domestic surveillance apparatus reading everybody’s email, the legions of domestic securities agencies busy entrapping dumb Arab-Americans, the vast flow of public funds into the maws of large corporations — and the wars. All these things comprise Federal spending beyond the baseline, funded by borrowing.

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About the October jobs report: new jobs, bought at great cost

Summary:  Most people focus on the month-to-month changes in the jobs report, which consists mostly of noise (recently unpleasant noise).  The year-to-date and 12-month changes are more reliable, but miss the current trends.  Here we look at the change during the past two months. We remain in a slow recovery, somewhat faster than in 2010.  Enjoy this progress, as it was bought at great cost. A cost we cannot long continue to pay, borrowing and squarndering the money ($ which instead could be rebuilding America).

American Workers

Contents

  1. Conclusions
  2. Household survey
  3. Establishment survey
  4. Unemployment
  5. Other important metrics
  6. For more information about US economy

(1)  Conclusions

Here we examine the October employment report from the Bureau of Labor Statistics.  They conduct two surveys: one of households, one of businesses.  They are not directly comparable, each giving different perspectives on the US economy.  Today we look at the change during the past 2 months.  The picture painted is consistent with the many other streams of information about the economy — effective rebuttal to the partisans who believe that government data is faked to re-elect Obama.

The important detail to know about the recovery:  during this period the government’s public debt increased $139 billion — 7.3% of GDP (see debt here and GDP here), one of the higher fiscal deficits in the world.  Our shiny recovery results from massive borrowing and spending.

In other words, organic growth has not yet resumed.  The US economy has stabilized and slowly improves due to the massive “drugs”  of monetary and fiscal stimulus.  Both have severe side-effects, which at some unknown point in the future will become problematic or untenable.  But the worst side effect was unexpected:  the stimulus eliminated pressure for reform.  We have had the New Deal stimulus without the New Deal reforms (some of which failed, but the others laid the foundation for the great post-war boom).

(2)  The Household survey

The Current Population survey is a simple survey of households, with large error bars but no revisions.  It’s worth watching because it’s the basis for the headline unemployment rate, it gives some useful data not in the more-accurate business (establishment) survey, and because some research suggests that the household report shows inflection points before the establishment survey.

During the past year, the number employed growing at the roughly same rate as the civilian non-institutionalized population, although with large variances month to month. But not in September and October, during which the household report shows employment growth four times faster than the establishment report (+1,283 vs 319, both in thousands). The Household report might be showing an inflection point in the economy.  It’s too early to say.

Here are seasonally adjusted numbers, in thousands.

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Prof Black blasts back at yesterday’s post about the US debt

Summary:  Economics is one of the central sciences of our time, especially about one of the frontier subjects: the macroeconomic effect of debt. Yesterday’s post centered on a graph from Ed Dolan. Today we have a rebuttal by Prof William K. Black. There are few aspects of economic theory more important today.

This is the second in a series. Other posts are:

(1)  America’s strength is an illusion created by foolish borrowing, 10 October 2012
(3)  Ed Dolan talks to us about modern monetary theory. Can it save us?, 12 October 2012
(4) Ed Dolan Asks What Does it Mean for Fiscal Policy to be “Sustainable”? MMT and Other Perspectives, 30 November 2012

This discusses  yesterday’s post, in particular the source of its centerpiece, a graph from “By One Key Budget Indicator, the Structural Primary Balance, Even Greece Is Doing Better Than the United States. Why That Should Worry Us.“, Ed Dolan (bio), Roubini’s Economonitor, 8 October 2012.

Prof William K. Black

Contents

  1. Prof Black’s reply
  2. About the author
  3. Update: Ed Dolan replies
  4. About Modern Monetary Theory
  5. For More Information

(1)  Prof Black’s reply

The argument that began the discussion relies on this fundamental assertion {from the post}:

“A fundamental measure of a nation’s financial condition is the structural primary budget balance. AKA the cyclically adjusted budget balance. As in this graph from “By One Key Budget Indicator, the Structural Primary Balance, Even Greece Is Doing Better Than the United States. Why That Should Worry Us.” by Ed Dolan. “

He is a very conservative scholar as you can see from his blogs and his associations with George Mason University and Cato. Dolan’s piece includes the admission that our present deficit

  • is largely the product of the Recession and
  • during the recovery from the Great Recession fiscal stimulus acts as an “automatic stabilizer,” i.e., a “counter-cyclical” policy that speeds recovery and reduces the severity of the recession.

Europe and Chile as economic experiments

Note that the world has provided a “natural experiment.” The EU responded to the Great Recession with austerity, a pro-cyclical policy that makes the recession more severe and longer. Moreover, EU and ECB leaders’ mantra is “there is no alternative” (a phrase that should send warning chills up any veteran’s spine) — because nations that joined the Eurozone gave up their sovereign currency they no longer have the ability to adopt rational automatic stabilizers. More precisely, they crippled the effectiveness of their automatic stabilizers through the limitations of their “Stability and Growth Pact.”

Note that this has not prevented budget deficits from occurring but it has greatly reduced fiscal stimulus.

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