Total debt comparison: US vs Japan

Here's a chart of the ratio of US total credit market debt to GDP, a classic exponential trend breakdown:

Here's a similar chart for Japan:

It's remarkable how in Japan government debt has substituted for private debt; the reason for this is the government has been cushioning the credit crunch implied by falling private debt.

US population concentrations

What is most striking about this map is the vast empty areas.

Investing in technological progress leads to increased economic growth

Paul Krugman writes, in Is Growth Over? - NYTimes.com

that

" Smart machines may make higher GDP possible, but also reduce the demand for people — including smart people. So we could be looking at a society that grows ever richer, but in which all the gains in wealth accrue to whoever owns the robots."

Dean Baker responds, in
Capital Biased Technological Progress; It Doesn't Just Happen | Beat the Press

"Krugman discusses the case where there is an exogenous change in the nature of technology that makes capital relatively more productive than labor. This leads to more capital being used, driving up its price, and less labor being used, driving down its price (i.e. wages)."

"the fact that we may appear to be seeing capital-biased technological progress should not be viewed as just some unfortunate event in the world that we have to learn to cope with. If we are in fact seeing capital-biased technological progress it is almost certainly the case that it is at least in part the result of policy decisions that could be handled differently"

I can see innovation shrinking employment, but the owners of the innovations theoretically would get the marginal wealth. Otherwise there'd be no point to the innovation. Raising tax rates on unearned income to the same as those of labor income would help a lot with the resulting inequality of wealth distribution.. This would be a policy decision that offsets the policy decisions mentioned by Baker.

A retrospective look at Japan's banking crisis

I recently stumbled across a research paper by Richard Koo titled "Japan's disposal of bad loans: failure or success?"

The thesis of this analysis is that Japanese monetary/fiscal authorities handled their post bubble banking crisis relatively well compared to how the US has handled its banking crisis which began in 2008.  The paper contains a lot of good data so it is worth the time even if you disagree with Koo's conclusions.

However, it looks like Koo is defining "success" as a fourteen year recessionary period.

The problem I have with this Koo analysis is with its conclusion is that Japanese monetary/fiscal authorities did mostly the right things.  The paper shows that the Japanese equivalent of the FDIC's Deposit Insurance Fund was in a negative balance from 1996 to 2008. This implies that it could still be in a negative balance now.  If your deposit insurance fund is negative, that's not "success".


In Japan much of the banks' bad loans were simply shifted into government debt.


Koo posits the concept that the US is handling its banking crisis differently when in fact the US is doing the same things that Japan has done.

Unemployment much higher than expected

Notice the point that shows that the unemployment rate would be 10.7% if the participation rate hadn't gone down.  In any case, the projections were clearly not close to the actual results.

China has bailout decision

Analysis: Too big to fail? China's wealth management products stir debate
| Reuters

China International Capital Corp (CICC), a prominent Chinese investment bank, urged regulators in a December 4 note to allow such products to fail. Most are not guaranteed by banks, analysts say. "If we don't take this opportunity to let a relatively small-scale contract be broken, it will only reinforce the attitude that these products have a rigid return and a limitless guarantee," CICC said. Forcing Hua Xia to stand behind these products would cause "no end of trouble", it added.

The default of a Chinese investment plan has handed Beijing a tough choice: bail out investors and endorse moral hazard or let it fail and risk unnerving those who hold at least $1 trillion in so-called wealth management products.

US financial regulators faced a similar decision four years ago and decided on unlimited bailouts, because the alternative was in their minds an apocalyptic financial system crash.

Is that really the only alternative?

Update: What this means is that China is on the verge of a major financial panic.

Update: China Warns of Rising Financial Risks Dec 26 2012

Due to soaring bank loans, with lending to the property sector and local governments a particular concern, China's financial system is facing increasing risk, the finance ministry warned Wednesday.

Interest rate trends

Calculated Risk today said in a post on housing starts showing that starts are increasing that

 "Residential investment and housing starts are usually the best leading indicator for economy."

If housing starts are up, then that should mean that a Fed interest rate tightening cycle is close to beginning.

Except that the Fed Funds rate has been at or near zero for an extended period of time.

Here's what happened with interest rates after the Great Depression:

It's impossible to know how long it will take for interest rates to normalize this time.

Federal debt and GDP

The amount of federal debt appears to be growing exponentially

whereas real GDP seems to to show a linear growth trend(and growth may approach zero soon):

Four years of ZIRP

The Fed Funds rate has been near zero since December 2008:

See Fed cuts key rate below 1% for first time - Dec. 16, 2008

"the Federal Reserve cut its key interest rate to a range of between zero percent and 0.25%"

This is unprecedented.

Workers aged 55-69

Here's a trend looking for a breakdown:

Given that the youngest baby boomers are 48, there is a limit to how much more this number can grow.

Why China failed to progress technologically

Explaining why Chinese scientific discoveries didn't flower into a scientific revolution, Levenson wrote, "It is not because their forebears were constitutionally unable to nurture a growing tradition of science, but because they did not care to."

Science had no social prestige, he says, and it would never have occurred to traditional Chinese scholars that kudos was to be gained from claiming discoveries or inventions.  The ancients didn't turn such inventions into world-changing technologies, so why should we?

China Road page 105
Seems plausible to me

Trend breakdown: foreign ownership of Treasury debt

Notice that the proportion of US Treasury debt held by foreign governments has peaked

This begs the question, what will happen when the Federal Reserve reduces it's purchases of this debt?

Book review: China Road

I just finished a very good book Amazon.com: China Road: A Journey into the Future of a Rising Power (9780812975246): Rob Gifford: Books.

It's written by an English journalist who worked in China for many years. It was published in 2007 so it's reasonably contemporary and it addresses most of the big issues that China faces. The author thoughtfully analyzes the concept of whether China is capable of ever turning to democracy for example. The book focuses more on the domestic effects of the economic boom rather than the trade issues.

One interesting thing that the book addresses is the idea that China doesn't have social values anymore since Confucian ideals were obliterated by Maoism and now Marxism has no traction either. So the mentality is just do whatever you want since it's a "man eat man" world.

Another point that the author makes is that Confucian thought is hostile to populist, democratic ideas. And that the weight of Confucian tradition makes it unlikely that democracy will happen in China anytime soon. Of course that's debatable but it's a point of view that I had been unaware of.

Here's the book description from Amazon:

Route 312 is the Chinese Route 66. It flows three thousand miles from east to west, passing through the factory towns of the coastal areas, through the rural heart of China, then up into the Gobi Desert, where it merges with the Old Silk Road. The highway witnesses every part of the social and economic revolution that is turning China upside down.
In this utterly surprising and deeply personal book, acclaimed National Public Radio reporter Rob Gifford, a fluent Mandarin speaker, takes the dramatic journey along Route 312 from its start in the boomtown of Shanghai to its end on the border with Kazakhstan. Gifford reveals the rich mosaic of modern Chinese life in all its contradictions, as he poses the crucial questions that all of us are asking about China: Will it really be the next global superpower? Is it as solid and as powerful as it looks from the outside? And who are the ordinary Chinese people, to whom the twenty-first century is supposed to belong? 

This book is well worth your time.

FDIC leader says banking system still poses significant risks

FIRST LOOK: FDIC’S HOENIG SAYS PUBLIC REMAINS AT RISK — FDIC Director Tom Hoenig will deliver a broad policy speech this morning at the AICPA-SIFMA conference in NYC.  Hoenig’s speech “says that the public remains at risk of having to pick up the pieces when the next financial setback occurs. The safety net continues to expand to cover activities and enterprises it was not intended to protect, resulting in subsidized risk taking by the largest financial firms and fueling their leverage. At the same time, the tolerance for leverage remains essentially unchanged, leaving us in a situation that is little different than before the recent crisis.  ...
“We can be confident that as time passes, this leverage again will be a problem and the public again will be left holding the bag. … Hoenig offers three recommendations to change this outcome by changing the framework and related incentives. They are: Changing the structure of the industry to ensure that the coverage of the safety net is narrowed to where it is needed … Simplifying and strengthening capital standards … Reestablishing a more rigorous examination program for the largest banks and bank holding companies to best understand the risk profile of both individual firms and financial markets.”

Essentially none of the problems that led to the 2008 banking crisis have been resolved.

China now analogous to Japan in the late 80's

That is the point of the essay When the Growth Model Changes, Abandon the Correlations by Dr. Michael Pettis.  He states "it is much more appropriate to compare China today with Japan in the late 1980s". 

Pettis backs this up by comparing the economic imbalances that existed for these two scenarios, concluding that China's economic imbalances today are much like those in Japan at its economic peak.

"Because of the serious imbalances China is much more like Japan in the late 1980s, with the major difference being that Japan never took debt, investment, and consumption imbalances to anywhere near the levels that China has taken them."

The conclusion that logically follows is that China is in for a long period of economic decline.  Their boom was generated by unsustainable buildups of imbalances and the reversing of this implies stagnance and decline in measures of economic activity.

Rethink the value of college

The cost of college has gone way up at the same time wages for graduates have declined. It's definitely time to reconsider the cost/benefit analysis for attending college.

Marketable skills can be developed in other ways.

Saudi Arabia crude oil production history

This chart shows Saudi production ramping exponentially during the 1960's and early 1970's. In my view this is the prime reason for the peaking of US domestic oil production during the same time frame.

Extremely low cost Saudi oil squeezed out higher cost production in the US.

The chart source is here.

Durable goods metric looks ugly

This measurement took a steep drop recently as the chart shows:

Such drops seem to coincide with recessions, at least recently.

Retail sales likely peaking

The trend appears to be leveling off...

Average earnings have leveled off which supports the idea that retail sales will flatten.

Consumer credit is spiking, but it seems likely that this growth should slow, as consumers' earnings (needed to pay back debts) aren't spiking.

Mortgage fraud being prosecuted

Lorraine Brown, Former Head of DOCX (LPS), Pleads GUILTY to CRIMINAL Conspiracy, Faces up to 5 Yrs in Prison | ZeroHedge

"A former executive of Lender Processing Services, Inc. (LPS) – a publicly traded company based in Jacksonville, Fla. – pleaded guilty today, admitting her participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States."

Brown ran the company and the company got paid based on the volume of documents processed. So they faked the process to make it faster and get paid more.

"According to plea documents filed today, employees of DocX, at the direction of Brown and others, began forging and falsifying signatures on the mortgage-related documents that they had been hired to prepare and file with property recorders’ offices. Unbeknownst to the clients, Brown directed the authorized signers to allow other DocX employees, who were not authorized signers, to sign the mortgage-related documents and have them notarized as if actually executed by the authorized DocX employee.

Also according to plea documents, Brown implemented these signing practices at DocX to enable DocX and Brown to generate greater profit. Specifically, DocX was able to create, execute and file larger volumes of documents using these signing and notarization practices. To further increase profits, DocX also hired temporary workers to sign as authorized signers. These temporary employees worked for much lower costs and without the quality control represented by Brown to DocX’s clients. Some of these temporary workers were able to sign thousands of mortgage-related instruments a day. Between 2003 and 2009, DocX generated approximately $60 million in gross revenue."

Cut the defense budget

Here are some suggestions that would reduce defense spending that is unnecessary:

-Bring home all forces from South Korea.  Where's a threat?  In any case South Korea can defend itself.

-Bring home all forces from Europe, except for a few liason people.  Again, where's the threat and why shouldn't European nations be able to defend themselves.

These are legacy operations that exist just due to bureaucratic inertia and turf issues.

Exponential fallacy of economics

Standard economic analysis is based on exponential growth calculations.  In other words, rates of growth are assumed to be exponential ad infinitum.  The classic example is that of continuously compounded interest on an investment.

Pyramid schemes or Ponzi schemes show exponential growth by providing high profits for a few initial investors and losses among great numbers of investors.

Exponential growth models of physical phenomena only apply within limited regions, as unbounded growth is not physically realistic. Although growth may initially be exponential, the modelled phenomena will eventually enter a region in which previously ignored negative feedback factors become significant (leading to a logistic growth model) or other underlying assumptions of the exponential growth model, such as continuity or instantaneous feedback, break down.

That is the core of my argument, that most standard economic analysis fails to take into account where the assumptions that support exponential analysis break down.

Book review: "Makers" by Cory Doctorow

I recently finished reading a good near future science fiction novel:

 Makers: Cory Doctorow: Amazon.com: Books

This novel addresses the issue of changing labor patterns based on widespread availablity of affordable production tools like smartphones and 3D printers. The key thesis is that the nature of work will be constantly changing, in large part due to technological change and demographic factors.

Another theme of the book is that shantytowns(Hoovervilles) become a common feature in American cities due to the non-affordability of conventional housing.

I think in the book the point is made that the adaptations that will need to be made by people will look nothing like traditional lifestyles. Some adapt and some fail and wind up living in shantytowns or living with room-mates. Of course, this isn't news to some observers but I thought the book did a nice job of illustrating some of the possible social structures that may result.

Yet another important theme in this novel is the concept that locations of resources or technological /cultural centers change, and workers will have to migrate to where the economic activity is happening.  The book addresses this by speculating that Silicon Valley becomes too costly and self absorbed to become aware of changes taking place in other parts of the country and of the world, and becomes thereby irrelevant to the people creating new technologies and processes.

One concern addressed in the book is the idea that we might not be able to think up new jobs as fast as the old jobs are automated and outsourced out of existence.   The time required to scale up a new industry can greater than the time required by competitors to undercut the economic logic of the new industry.

Overall, "Makers" is a more benign view of the future than those of post-apocalyptic science fiction, and seems more plausible. The novel provides plenty food for thought about key issues that face American society today.

Japan entering recession

Key elements of the Japanese economy are pointing to a strong chance that the country will record a recession for H2 of 2012.  For instance:

"Households are holding the most cash since 2005, shunning risk as they grow gloomier, Bank of Japan data indicate. Sliding private consumption contributed to an annualized 3.5 percent decline in gross domestic product in the past quarter"(1)

Falling consumption means that revenue growth from consumption tax increases would be limited and such increases would likely contribute to further declines in consumption spending.

Further, increases in cash holdings means less funds available for purchase of government debt and private investment.

"Japan risks its third textbook-definition recession since 2008, meaning two straight quarters of contraction. The median forecast in a survey of economists by Bloomberg News is for an annualized 0.4 percent contraction in the September to December period."(2)

The global economic outlook doesn't give much support to the idea that there will be near term increases in Japanese exports.

"Japan's exports fell 5.0 percent in July-September, the biggest slide since a 6.0 percent decline in April-June last year, the data showed.  Private consumption - which accounts for roughly 60 percent of the economy - fell 0.5 percent in the third quarter.  Capital expenditure tumbled 3.2 percent, the fastest pace of decline since a 5.5 percent drop in April-June 2009.  Sony plans to reduce capital spending by 29 percent in the year to March 2013 and Panasonic plans a 27 percent cut, after incurring huge losses in their TV manufacturing businesses."(3)

Japan's industrial sector doesn't seem capable of rapid reorganization to successfully adapt to the changes  in markets and industries that have been and continue to take place.

Update:  Japan’s Exports Reach Three-Year Low as Recession Looms: Economy - Bloomberg

"Shipments totaled 53.5 trillion yen ($653 billion) for January through October, down 2.3 percent from the same period in 2011...The trade deficit for 2012 so far is a record 5.3 trillion yen."

Radiation impact on Japanese children

"A report by Fukushima Medical University first published this April and updated in July revealed that 36% of Fukushima children have unusually overgrown thyroid glands, and could be prone to cancer.

Of 38,000 children examined, 13,000 had cysts or nodules as large as five millimeters, the Health Management Survey stated, which made doctors around the globe rate Japan’s reaction to the aftermaths of Fukushima disaster as “ultimately medical irresponsibility.”"

Mascot bird teaching Fukushima children how to avoid radiation — RT

Need for change

By Their Fruits Ye Shall Know Them » Counterpunch: Tells the Facts, Names the Names

by Michael Hudson

Here’s the dilemma the American president faces: Markets are shrinking, and consumers are having to repay debts they earlier took on during the heady Bubble Economy that crashed in 2008. Paying down these debts leaves less to spend on goods and services. Labor productivity is soaring – but not wages. While the bailout economy’s fruits are going to profits and paid out as interest and dividends, neoliberals are demanding that the retirement age be raised, not lowered, and that work hours be lengthened more, not shortened. Federal Reserve Chairman Ben Bernanke’s helicopter only hovers over Wall Street, not the rest of the economy.

The middle class that voted so strongly for Mr. Obama four years ago is being squeezed. To describe their plight, I expect the next four years to see the spread of a fresh vocabulary to describe what is happening: debt deflation and neofeudalism, while the classic terms rentier and oligarchy may become popular once again.

But neither party will use these words. Only a third party can do that. Right now its potential members are called “Independents.” A new title is needed for a new pro-labor, anti-militarist coalition that would restore the spirit o0f true reform, progressive taxation and the rule of law (that is, throw financial crooks in jail). The problem the economy faces is how to revive wages and consumer demand, and to write down personal debts, not government debt. Mr. Obama has joined with the Republicans in perverting the vocabulary to pretend that government is the problem, not his campaign contributors on Wall Street.

Japan consistently running trade deficits

This chart of Japan's trade balance shows consistent deficits roughly since the Fukushima catastrophe. 

Since practically all of the country's nuclear power generating capacity has been shut down, the country has been reliant on oil and natural gas imports, which contribute to the negative trade balance.

Given this situation, Japan is likely no longer a net purchaser of US Treasury debt.

Real defense spending by the US

Here's a chart from the Heritage Foundation that shows US defense spending in constant 2005 dollars:

Economics professor admits textbooks highly profitable

Quoted from Standing Behind Every Great Con Artist is Someone Like Glenn Hubbard

"INTERVIEWER: Forgive me, but I'm going to be direct: How does your personal income compare, your private income as opposed to your university salary?

GLENN HUBBARD: Vastly times more, because I write textbooks, so that's much more remunerative than being a professor."

Scary defense spending trend

US defense spending doubled between 2001 and 2010 as shown in this chart.  It looks like an exponential trend.

Here's the same data with an exponential trendline fitted:

It looks like a good fit.  The data can be found here.

An argument for building a new long range bomber

is here:  Long Range Strike.  The core of the piece is this:

the United States has little choice but to invest in the US Air Force's new long-range penetrating stealth bomber programme until it reaches fruition. Right now, the USAF plans to buy only 80 to 100 of the LRS-B aircraft but analysts and retired officials say that number may not be sufficient... Lt Gen David Deptula, the USAF's former intelligence chief and Rebecca Grant, a noted air power expert, both say more are needed--155 to 200 jets.


This would cost hundreds of billions of dollars. I don't see a need for a manned long range bomber when a remotely piloted aircraft is possible. Targets could be designated from space.

Mortality

This chart from the CDC shows the annual age adjusted death rate.

The downward trend is good.

The CDC comments that
"The risk of dying decreased for all age groups but was greater for younger age groups with a 94 percent reduction in death rates at 1–4 years compared with a 38 percent decline at 85 years or more."

So put another way the improvement was much greater for young people than the extremely old.

Another CDC comment said that
"Heart disease, cancer, and stroke were among the five leading causes every year between 1935 and 2010."

That gives the impression that not a lot of progress is being made in treating these three causes of death.

Disposable income and sales trends

After plummeting during the recession, retail sales resumed their rate of climb.

A chart that shows just the retail sales gives an idea of how important food services (restaurants) are in the above chart:

Finally, a chart of disposable personal income:

It looks like disposable personal income isn't rising as quickly as retail sales; suggesting that debt is making up the difference.

Fiscal cliff spending cuts in a nutshell

The cliff is "across-the-board cuts of $1.2 trillion in both defense and non-defense programs, starting in 2013."
 Key parts of the cuts include

-" caps on new, Congress-approved spending on defense programs will be reduced from 10 percent in 2013 to 8.5 percent in 2021, with savings of $454 billion."

-"Caps on Congress-approved spending on non-defense programs would be reduced from 7.8 percent in 2013 to 5.5 percent in 2021, with savings of $294 billion."

-"Medicare spending would be reduced by 2 percent a year, with savings of $123 billion."

-"The CBO estimates that the savings would reduce interest payments on the national debt by $169 billion."

Those are big numbers but are spread out over eight years, leaving room for Congress to change a lot of these cuts.  The key is that " both defense and non-defense cuts would total $54.7 billion in 2013".  In other words the actual 2013 cliff is only $55 billion.  That's a drop in the bucket of the total US economy.  Fiscal stimulus and loose monetary policy have barely managed to keep GDP increasing.   It's time to focus on eliminating budget deficits.  Particularly since much of US defense spending is for weapons programs that are chronically behind schedule, over budget, and fail to meet requirements.  Killing the F-35 JSF program would lead to a lot of savings right away and would have little impact on the quality of our air forces.

Australian banking fiasco

In Auditor gave Banksia accounts a tick the Sydney Morning Herald reports that

"Auditors gave Banksia Securities a clean bill of health less than four weeks before its collapse last night, its latest accounts show. The non-bank lender's fall into receivers' hands has left thousands of investors in limbo over the fate of about $660 million in investments."

This banking collapse is a matter of national concern, as the SMH reports:

"Premier Ted Baillieu received a briefing from the receivers today and said the government was concerned about the impact of Banksia’s collapse on regions.
‘‘The financial position of Banksia and the regulation of this corporation is a matter for the Commonwealth and ASIC,’’ Mr Baillieu said."

The auditors clearly missed something important in their report.

Monetary base a poor indicator

as the chart shows a sharp spike during the 2008 financial crisis, this indicator wasn't showing the true state of affairs until it was revalued sharply upward

One wonders if there any more spikes lurking...

Bank failure trend

The number of bank failures peaked some time ago and likely won't spike again anytime soon.

The question of whether more banks should have failed but haven't due to regulator forbearance is an interesting one.

Italian earthquake conviction a travesty

It has been widely reported that Italian scientists convicted for not warning about deadly 2009 quake.

This Italian court ruling that scientists are guilty of manslaughter is the height of Kafka-esque absurdity. If this is the way the zeitgeist in Europe is going then things are worse there than generally thought.  The lack of understanding or disregard of how science works is deeply disturbing.

If scientists are prosecuted to distract the public from economic and political problems, then technological progress will disappear. 

An analogous case would be if meteorologists were to be prosecuted for uncertainty in forecasts regarding a hurricane or a blizzard.  It just does not make any sense.

Avoiding economic traps

Economist Edward Hugh notes in In Search Of Lost Demand that

"There are countries which are not so heavily in debt, and which do have a large growth capacity and a huge quantity of so called “pent up” demand - the so called Emerging Economies...these economies are still only around 40% of global GDP, so it is demand in 40% which is having to pull the other 60% with it. The interesting part is that in the space of a decade these economies have surged from 20% to 40% of the total. If the same trend continues by 2020 they could easily constitute 60%. Then things could be different, since we could have 40% of the total living from exporting to the other, faster growing, 60%. But we aren’t there yet"

Can the emerging economies avoid the traps that have entangled the developed world? As an example there's the liquidity trap that the Bank of Japan finds itself grappling with.  It's a long range question, but worth considering given that macroeconomic policies have played a large role in guiding the developed countries into the mess they are in now. 

Economic policymakers seem to act as if exponential trends will continue indefinitely. Yet it is well documented that there are limits to growth. Policymakers in the emerging economies would do well to learn lessons from the mistakes that have been made that led to the current global crisis.

Exponential trend breakdown: a novel analytical tool

Economic policymakers seem to act as if exponential trends will continue indefinitely.  Yet it is well documented that there are limits to growth.  Mark at Illusion of Prosperity has done an excellent job of identifying trend failures in measures of economic activity.   Good examples can be found at the following links:

Industrial Production

Epic Exponential Trend Failure of the Day

40.7 Million Missing Jobs

I ran a search on the terms "exponential trend failure" over at the RePec database (Research Papers in Economics) and came up with no relevant results.  Mark could package up all of his analysis into a paper and it would be legitimately be a novel analysis.

I also ran a search in Google Books for the terms (exponential "trend failure" economics) and the only thing that came up was the blog Illusion of Prosperity. Mark is on to something.

Prelude to the fall

The following is a section from a Wikipedia article titled Crisis of the Third Century.  I have highlighted in bold certain statements that highlight economic consequences of this breakdown leading up to the final fall of the Roman Empire.  Think of it as an illustration of possible future consequences of an economic crash.

With the onset of the Crisis of the Third Century, however, this vast internal trade network broke down. The widespread civil unrest made it no longer safe for merchants to travel as they once had, and the financial crisis that struck made exchange very difficult with the debased currency. This produced profound changes that, in many ways, would foreshadow the very decentralized economic character of the coming Middle Ages.
Large landowners, no longer able to successfully export their crops over long distances, began producing food for subsistence and local barter. Rather than import manufactured goods from the empire's great urban areas, they began to manufacture many goods locally, often on their own estates, thus beginning the self-sufficient "house economy" that would become commonplace in later centuries, reaching its final form in the Middle Ages' manorialism. The common free people of the Roman cities, meanwhile, began to move out into the countryside in search of food and better protection.
Made desperate by economic necessity, many of these former city dwellers, as well as many small farmers, were forced to give up hard-earned basic civil rights in order to receive protection from large land-holders. In doing so, they became a half-free class of Roman citizen known as coloni. They were tied to the land, and in later Imperial law their status was made hereditary. This provided an early model for serfdom, the origins of medieval feudal society and of the medieval peasantry.
Even the Roman cities themselves began to change in character. The large, open cities of classical antiquity slowly gave way to the smaller, walled cities that were common in the Middle Ages. These changes were not restricted to the third century, but took place slowly over a long period, and were punctuated with many temporary reversals. However, in spite of extensive reforms by later emperors, the Roman trade network was never able to fully recover to what it had been during the Pax Romana (27 B.C.—A.D. 180) of the first century A.D.
While Imperial revenues fell, Imperial expenses rose sharply. More soldiers, greater proportions of cavalry, and the ruinous expense of walling in cities all added to the toll. Goods and services previously paid for by the government were now demanded in addition to monetary taxes. The steady exodus of both rich and poor from the cities and now-unremunerative professions forced Diocletian to use compulsion; most trades were made hereditary, and workers could not legally leave their jobs or travel elsewhere to seek better-paying ones.

Prices up, earnings down

According to the BLS release dated October 16,

CPI for all items increases 0.6% in September as gasoline prices rise

while at the same time 

Real average hourly earnings falls 0.3 percent in September.

The conclusion one can draw from this data would be that less goods and service were consumed in the month, or alternatively stated, that real PCE actually declined if consumers didn't take on additional debt.  In any case the American consumer is getting the screws tightened.

Cost of food near exponential trend

Here is a chart of the BLS CPI index for food only:

What's remarkable is how stable food prices were until the Nixon years and the subsequent skyrocketing of the index.  Dumping the Bretton Woods exchange system hasn't been good for the cost of food.  Oil prices seem not to have affected this metric as food prices kept rising during the long period of low oil prices in the 1980's and 1990's.

A better phrase for this sort of chart would be a "hockey stick".

Inspired by Illusion of Prosperity.

Global labor arbitrage

The Jakarta Post today reports that

Indonesia’s labor costs, however, are still lower than that of China and Thailand, but higher than Vietnam. 

 The Post further reports that

a sizeable amount of investment from Taiwanese firms will soon enter Indonesia, not only in the sectors where investment is already ubiquitous, such as textiles, garments and footwear, but also in the high-technology industry.

and that

Taiwan is the ninth-largest foreign investor in the country, driven by the existence of big firms like Acer, Chinatrust Bank, Evergreen Group, Pao-cheng Shoes Co. and President Food.

In a nutshell, jobs will be shifted to Indonesia from China due to changes in relative wages. This is the essence of the global manufacturing sector now.

Gold!

The US Treasury reported on May 31, 2011 that US gold holdings amounted to 261,498,899 troy ounces.

See Ron Paul Hearing to Investigate U.S. Gold Reserves | Coin News.

Per the Federal Reserve website this gold is valued at roughly $42 per ounce for reporting purposes:

FRB: U.S. Reserve Assets and Foreign Official Assets Held at Federal Reserve Banks--December 2008 

At $1770 per ounce(today's price roughly), US gold holdings would be worth $462.8 billion; however at the current "book value" of $42 an ounce used by the Federal Reserve the valuation would be only $11 billion.

Here's a 5 year price chart for gold (from goldprice.org):

The US should clearly raise its "book value" for its gold holdings to at least a three digit number; the current book number is absurdly low.

American aging

The Census projects that in 2050 the largest age cohort will be women 80 years and older:

The chart shows a reversion to a pyramidal structure with the exception of the massive cohort of 80+ male and female.  If you are 80 in 2050, that means you were born in 1970.  Looks like U2 and REM royalties will be rolling in for a long time to come...

Auto financing and consumer credit

Average financing for new cars:

It appears that $28,000 is roughly the effective credit limit in recent years.  Assuming an interest rate of 9.99% and a 72 month loan term the monthly payment works out to roughly $519.00.

Total consumer credit:

Auto financing is clearly a significant component of this metric.

US gasoline demand in decline

Gasoline consumption is still well  below the peak in 2007. 

Less driving and more fuel efficient vehicles on the road caused in part by sharply higher prices is the formula for what we are seeing in this metric.

Sales tax collections in the US

An astonishingly exponential growth trend is evident in this FRED chart:

Not really that suprising when you consider the path of total retail trade:

Unconventional analysis of health care costs

Fatties and smokers save the NHS money

(excerpted)
Written by Tim Worstall  Saturday 9 April 2011

We're told, endlessly, that smoking must be even more highly taxed because smokers cost the NHS oodles of money. Further, that salt, fats, junk food, should all be taxed because fatties cost the NHS lots of money.

This is nonsense, nonsense on stilts.

 There are good reasons to suggest to people that perhaps they shouldn't smoke: it's not particularly good for them after all. But having suggested, having checked that they are aware of the trade off they are making, that's as far as we should perhaps go. Taxing smokes highly because demand is relatively insensitive to price is also fine: we do have to get tax revenues from somewhere...

But to argue that either hamburgers or tabs lead to costs to the NHS is simply wrong:

The researchers found that from age 20 to 56, obese people racked up the most expensive health costs. But because both the smokers and the obese people died sooner than the healthy group, it cost less to treat them in the long run.

On average, healthy people lived 84 years. Smokers lived about 77 years and obese people lived about 80 years. Smokers and obese people tended to have more heart disease than the healthy people.

Cancer incidence, except for lung cancer, was the same in all three groups. Obese people had the most diabetes, and healthy people had the most strokes. Ultimately, the thin and healthy group cost the most, about $417,000, from age 20 on.

The cost of care for obese people was $371,000, and for smokers, about $326,000.

 ...when you add in the costs of the state pensions that those who die young don't get, smoking and gorging save the government vast sums of money.

 There are perfectly good arguments to use in persuading people to not smoke or to eat well. "Wouldn't you like to live longer?" is a useful one for example. But if the answer that comes back is "No, I'd prefer to have a cigar right after this triple scoop sundae" then that's just up to the individual and how they wish to chart their course through this vale of tears we call life.

Lying to everyone about the costs of health care just doesn't help at all. So could various people please stop doing it?

Falling average earnings for college graduates

The Atlantic: The Graph That Should Accompany Every Article About Millennials and Economics

Real earnings for young grads with a college degree have now declined for six straight years. "Real average earnings for young grads have fallen by over 15% since 2000, or by about $10,000 in constant 2011 dollars," PPI reports.

This is a serious employment problem, and demonstrates a dis-incentive to earning a college degree.  It also reinforces the argument that there is no shortage of qualified applicants for most jobs in the US.

US population growth 2011 by state

Notice that a few states grew significantly between 2010 and 2011, while most grew by small amounts.  Growth is concentrated, which means that growth management must be different depending on the actual amount of growth that is taking place state by state.

Fake labor shortages redux

This appeared at one of my favorite blogs:

Illusion of Prosperity: Quote of the Day

"Most restaurateurs know there are simply not enough qualified applicants for the positions they need to fill."

The fake labor shortage meme appears again.  The qualifications for restaurant jobs are minimal; how can anyone say there aren't qualified applicants with a straight face?

Here's another example:

Shortage of Qualified Employees Poses Big Challenge | BusinessNewsDaily.com

"Despite all the talk of high unemployment rates, business owners say that finding qualified employees is one of their biggest challenges.  Those were the findings of the 2011 HireRight Employment Screening Benchmarking Report, which indicated that 49 percent of respondents listed finding and retaining qualified employees as a top business challenge. That's the same number that named cost-cutting as their biggest challenge."

And one more example:

Skilled Workers In Demand As Companies Face Talent Shortages

"May 29 (Reuters) - The United States and other large economies cannot find enough skilled workers, engineers and other in-demand employees, according to an annual study on talent shortages.
The study, by staffing services giant ManpowerGroup, found 34 percent of employers around the world report trouble filling jobs because of a lack of available talent. "


If there really were shortages, wages would be going up and unemployment would be going down.

Instead we have sixty four consecutive weeks in which initial unemployment claims have been revised up from the first estimate.

 I think the meme is used as an excuse to justify offshoring of jobs. If corporations can point to news sources/studies showing a shortage, they can justify offshoring by claiming a lack of qualified applicants domestically.
 
A Google search using the search terms "not enough qualified applicants" 2012 turns up roughly 33,000 results.  This concept is being systematically propagated, and is harmful to people considering college and career choices.