Kool-Aid and GDP: The Delusion of Economic Activity 36 comments
July 03, 2009
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We continually confuse Gross Domestic Product - GDP - with the economy. GDP simply does not measure all the elements.
GDP is the total market value of all final goods and services produced in a country in a given year. If an item is imported into the USA, it is subtracted from GDP. This is correct if you are trying to measure the production inside a country, but incorrect if you are measuring economic activity.
Simply adding imports (instead of subtracting) inside of GDP, we can get a better feel of what our Great Recession has done to the economy.
In 1Q2009, the economy was falling at an annual rate of 15% - almost three times faster than GDP. And notice the difference in the direction of the curves in 1Q2009. The GDP was less bad, but economic activity was much worse.
But do not be fooled by this analysis. It does not even begin to encompass all the elements of our economy. GDP (and therefore the Economic Activity graphed above) excludes items such as buying and selling existing items such as equities and existing homes. With the collapse of values and volumes, our economy literally has hit the wall.
Unemployment (including marginally employed) is pushing 20%, industrial production off 20%, investment off 25%, consumer savings approaching 7%, exports off 10%, and imports off 17% - and the “economy” is only off the measly ~6% (annualized) as expressed by GDP.
We are a nation of Kool-Aid drinkers.
How much thought do you give to comparing the economic data? Because the data is put together using different methodologies by different groups, it does not necessarily correlate – which is what you are looking for to confirm trends. Take for instance personal savings rate and consumer consumption. You would normally expect some inverse correlation (especially since the credit consumption is falling – and unemployment at record highs with stagnant earnings). But here we have savings and consumption increasing at the same time.
The methodology in deriving employment / unemployment data continues to change throughout the years making comparison between the recessions more and more difficult. When you think unemployment data is not as bad as past recessions (and it is really worse) – investors and the government will make bad decisions. Was the loss of employment 467,000, or really almost 700,000 as some claim? Is the U-3 unemployment closer to 10 million than the 7 million published number?
Using the average job creation data since 2000 and the current level of initial unemployment claims – the real loss of employment this month should be closer to 1,000,000. Somehow the creation of new jobs has mysteriously doubled in the last few months.
Yes punters, you can throw out slogans like “history repeating” and “history rhyming” – but if the data you are working from is bogus you are not repeating or rhyming anything. I am flat ass telling you that the cuffs and collars do not match. The economy is not acting with historical precedent based on the data we are seeing.
Are things different this time or is the data we are looking at flawed.
Either way, you need to critically analyze the decisions you are making.
Enjoy the delusion.
Additional Economic Events from this Past Week
Those that have dealt with me in past life know that I have held senior positions in supply management and logistics on scales coming close to the US military. I am not a fan of using the Institute of Supply Management surveys as a litmus test for economic activity as I realize the shortcomings of this particular pulse point on the economy, as well as the methodology used in the survey itself.
The headline: Manufacturing Contracted in June, but Reached Highest Level Since August 2008 - US June ISM Mfg. business activity index was 44.8% vs. 42.8% in May
The reality: We use ISM surveys because it comes out a month in advance of quantitative data and it gives us a look at what the future might hold. If you skip on down in this article, you will find a paragraph on US industrial production for May which shows a significant decline. If we look at the ISM data for May, it shows an almost leveling of industrial production. The punters like to use ISM data because it continues to be a rose colored look at manufacturing. When quantitative data comes out you will have forgotten what the ISM survey conveyed.
I normally ignore the Census.gov’s construction spending report as it duplicates other data. But in the May 2009 data which shows overall spending down slightly MoM and down over 11% YoY – I noticed that public spending was down MoM. Where is the stimulus??? I realize it is slow acting but a few billion ought to have been spent by now. Either something is wrong with the data, or something is wrong with the stimulus.
Car sales up slightly, truck sales down slightly MoM in June 2009. Ford actually doing well comparatively – but overall the auto sector sales showed no sign of recovery.
Last week the obviously erroneous University of Michigan’s consumer sentiment survey showed consumers believe their current conditions were continuing to improve dramatically. The current ABC news poll says the opposite:
At the midpoint of 2009, consumer confidence is on pace for its worst year in 23 years of polls and suffering its lowest second-quarter average along the way.
This week, the ABC News Consumer Comfort Index stands at -51 on its scale of +100 to -100, just 3 points from its lowest on Jan. 25 and its second straight week below the dreaded -50 level.
And to add insult to injury to the bogus University of Michigan consumer confidence survey, the Conference Board said their consumer confidence survey actually declined in June 2009. Says Lynn Franco, Director of The Conference Board Consumer Research Center:After back-to-back months of strong gains, Consumer Confidence retreated in June. The decline in the Present Situation Index, caused by a less favorable assessment of business conditions and employment, continues to imply that economic conditions, while not as weak as earlier this year, are nonetheless weak. Looking ahead, Expectations continue to suggest less negative conditions in the months ahead, as opposed to strong growth.
The Chicago Fed published what we already knew – the recession did not change much in May 2009. This index uses 85 indicators and the index was basically unchanged. However, this is old news being one month old. Using the current data as a benchmark, I doubt whether there will be significant change when the June data is released.
One last point I would like to make about this index – it seems to track recession cycles very closely. The below graph overlays recession cycles, as well as inflation cycles.
Treasury yields declined somewhat during June 2009 but stabilized at the end of the month. The punters attribute the drop to the Federal Reserves FOMC meeting statement which the Fed emphasized that they would hold their benchmark rates at low levels for an extended period of time. This may be true, but it is also true that coincident worldwide indicators show the recession is not showing strong signs of wanting to end – and combining this with the World Bank lowering their economic forecast for this year,
The Chicago Fed Midwest Manufacturing Index (CFMMI) declined 3.1% in May 2009 with revised data showing the index was down 1.4% in April. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) covering all of the USA was down 1.0% in May indicating the Midwest is taking the brunt of the industrial output decline. The rate of decline is still significant and is not showing signs of less bad data yet. I would suggest, however, that the automotive sector’s problems are migrating across most of the smoke stack industries, and will turn on a dime when Chrysler and GM go back to work. So this decline, although adding to the bad news, should be viewed as transient.
The April 2009 Case-Shiller home price data has been released showing a much less bad housing value decline. I expect this index to turn positive next month due to summer sales peaks, and a slight surge in high value home sales changing the composition of the “average” market. The real issue is not the Case-Shiller home values, but the volume or velocity of homes being sold. As long as the volumes remain low, the long term trend will remain lower.
Mortgage applications continue to fall. The four week moving average ofmortgage loanapplication volume decreased 9.2% and decreased 7% compared with the same week one year earlier. The refinance share of mortgage activity decreased to 46% of applications. The average interest rate for 30-year fixed-rate mortgages decreased 10 basis points this week to 5.34%. The volumes of home loan originations are down this 2Q2009, and does not spell ‘green shoots’ for the housing industry specifically – and the economy in general.
Nonfarm payroll employment declined in June 2009 (-467,000), and the unemployment rate was little changed at 9.5%. Job losses were widespread across the major industry sectors, with large declines occurring in manufacturing, professional and business services, and construction. This data is compiled using telephone sampling, and I am beginning to wonder how they are getting the phone numbers. Is the number of landlines remaining a constant percentage of the population? Is VoIP being accounted (Skype, Magic Jack, Vonage, etc)? You realize that comparing this survey to the weekly unemployment data - that for 10 jobs which are lost approximately 8 are being created.
.The 4 week moving average of initial unemployment claims improved slightly to 615,250. Overall initial unemployment claims are continuing to trend down very slowly.
Filing for Bankruptcy: Atomic Paintball, Bank failures this week: Founders Bank, Worth, IL; Millennium State Bank of Texas, Dallas, TX; First National Bank of Danville, Danville, IL; Elizabeth State Bank, Elizabeth, IL; Rock River Bank, Oregon, IL; First State Bank of Winchester, Winchester, IL; The John Warner Bank, Clinton, IL; Mirae Bank, Los Angeles, CA.
Economic Forecasts Published this Past Week
The ECRI Weekly Leading Index continues to show improving conditions. I do not have Lakshman Achuthan’s quote this week on the WLI.
The US Inflation Index (USFIG) was published now showing three months of gain. The USFIG, designed to anticipate cyclical swings in the rate of inflation, rose to 81.9 in June from a downwardly revised 79.7 in May, which was originally reported as 79.8. According to said Lakshman Achuthan, managing director at ECRI:
The USFIG has now risen for three straight months, but is still not far above March's 51-year low. Deflation worries should clearly have dissipated, but it is still too soon to predict a decisive upswing in U.S. inflation. The gauge was pushed higher in June primarily due to inflationary moves in commodity prices.
Disclosures: long MMF's, PYEMX, EWZ, TBT, PGJ, EWY, DBC, EWA, EWC, EWT, PIN, Physical Gold
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This article has 36 comments:
The one thing even YOUR GDP analysis doesn't show, the true effect of off shoring on GDP.
GM imports billions in foreign parts, then sticks them in a "American made" car, the problem is now the parts are considered American and added to GDP.
Yet, NO American job at the parts plants.
Not to mention the effect that Washington's free for all in spending is having on GDP. Up, up, up.
Which is why even IF the experts can massage GDP into a gain, reality on the ground is that it isn't a gain in America.
Asia maybe, America, no way.
Take savings and consumption data. You point about an expectation of inverse correlation is correct. Unfortunately, I think the current measurements are a result of monies moving out of assets (like the markets) and into "savings" like demand deposit accounts. This would cause the charts to behave in that manner.
Finally, I thought it was very pertinent that you asked the "Where is the stimulus??" question. While the BHO administration targeted so-called "shovel ready jobs", the majority so far has gone to shore up state programs in the agencies, and in law enforcement educational jobs. In the case of California, a large portion of the money is being used to fill in the gaps in local budgets to ensure continuity of services.
If you look at Recovery.gov, it becomes obvious that the infrastucture monies were only about 1/5th of the allocation. Here in my town, the first monies that arrived were from various Federal departments that allocated the bucks to existing grant holders for important infrastructure projects like "prisoner reform studies" - hundreds of thousands of dollars given out with the admonition to "go hire a couple of students".
So you get to have the KoolAid with a large helping of improperly allocating funding laced with taxpayer debt!
I am trying to get my mind around your argument that "things are worse than indicated by the decline GDP" Correct me if I am wrong, however below is what I understand of your argument so far, help me to understand your point:
1. Economic Activity = GDP minus Imports
2. Because we are importing less, Economic activity is depressed.
3. Economic Activity is the true measure of consumption (less equities and existing houses)
4. Because consumption is down 15%, we are really in a pickle.
I don't buy argument #4. GDP + employment are the true measures of how much of a pickle we are in. Arguably, both numbers have been massaged and manipulated.
The concern I see is the misinformation, poorly interpolated information often provided by governments. I tend to run our data bases on the St Louis Fed data, and ECRI Leading indicators and a lesser extent on government. I do like Data.gov which is shaping up to offer a great deal, if it can be trusted to be fully revealing. I know, but my doctor thinks I am better.
The politics of economic reporting also includes the competitive implications of macroeconomic data. We have looked at these issues and there is reason to be very selective on data feeds.
Overall, we see Europe in worse shape than reported and slow to react. Not far behind is Japan. The US It is looking like the two grand policy choices are still awful: one, default on debts, or inflating the debt away. Neither of this has started yet, but there seems to be no concern either. I think the dense ignorance of national accounting theory by the Obama administration is a major failing: party politics before survival is not ethical politics. We need to go for job creation via small business stimulation.
My favorite weekly read is back. Thanks.
You wrote:
"But do not be fooled by this analysis. It does not even begin to encompass all the elements of our economy. GDP (and therefore the Economic Activity graphed above) excludes items such as buying and selling existing items such as equities and existing homes. With the collapse of values and volumes, our economy literally has hit the wall."
I believe you could have measured the velocity of money and added that to the discussion. That is a way of measuring economic activity and velocity of money has crashed. Of course, then we could get into a discussion of "velocity with value" and "velocity without value". This is the "good debt/bad debt" discussion, because credit is the major contributor to velocity in our system. Credit that fuels consumption and higher leverage of existing debt I put in the bad debt column. Credit that funds the means of productionof things with economic utility I put in the good debt category.
We all know which category dominated the credit world building the credit bubble.
Living4Dividends - - -
May I join your discussion? You raise some good summary points. Since GDP has had imports subtracted, I would suggest that economic activity should be GDP + 2 x imports, the first addition to cancel the subtraction in the GDP formula and the second to add economic activity. Since the drop in imports has been much greater than the drop in GDP, this gives a bigger drop in economic activity quarter-to-quarter and year over year than we see in the GDP changes.
The above discussion is difficult to follow - like speaking in double negatives. I actually had to get out a pen and some paper and diagram the effects to see them.
- If John takes his date Dagny out to an Italian restaurant for a dinner date and spends $ 100, that counts as $ 100 dollars for the GDP.
- If John buys the spagetti, meatballs, sauce, bread, cheese, and wine and it only costs 20 bucks ... pretty much the same exact dinner on his back porch only counts as 20 dollars for the GDP. Does that mean that John and Dagny are consuming 80 dollars less or are you at the point where John's cooking isn't quantified and counted for GDP?
How do you count an American working over seas? Does the American diplomat stationed in Cairo count for the American output or the Egyptian output? Does the Japanese businessman living/working on Wallstreet count for the Japan's output or America's?
Depending on how you want to count things GDP will differ. It is not an exact science, and different rules will produce different outcomes.
However, nobody can deny that Americans are producing and consuming less now. Any way you want to look at the economic pie, it has clearly has shrunk.
Your article keeps on giving and giving (as always).
1. With respect to the employment numbers, some of the failure to make all the features fit together lies in the part-time employment figures, which has driven the average work week down to 33 hours for all workers, part-time and full-time. I think the DOL needs to provide better accounting for the effects of increased part-time labor on the slack in the labor force. I have been working on this problem for several weeks, have published some thoughts (on SA and Real Money) and hope to have athorough analysis completed this week-end.
2. With respect to the ISM survey, the only rational for the latest data is pipeline. Production actiivity is counted when production starts and inventory is counted when production is complete. I don't know if that is the convention, but, if it is, then the inventory growth should show up with a lag time of pipeline length in coming months. If this is not the rationale, then I join you in saying WTF.
3. Savings and consumption may have both risen in May due to stimulus checks. If so, one or the other, or both will be going in the other direction in months without stimulus checks, unless the economy improves and unemployment stops rising.
4. The construction numbers are influenced by the very low level of stimulus spending. I read somewhere this week that less than 10% of the stimulus money has been disbursed by the federal government and less than a third of that has actually been committed to start work by states and local governments. It seems that 97 -98% of the construction stimulus remains to be deployed.
Steve, how do you do such a comprehensive job on the state of the economy each week? Some consultants are being paid big bucks to do less than this for their paying clients.
> Steve - - -
>
> My favorite weekly read is back. Thanks.
Yes, thanks for sharing your work, Mr. Hansen
Steve Hansen:
"GDP is the total market value of all final goods and services produced in a country in a given year. If an item is imported into the USA, it is subtracted from GDP. This is correct if you are trying to measure the production inside a country, but incorrect if you are measuring economic activity.
Simply adding imports (instead of subtracting) inside of GDP, we can get a better feel of what our Great Recession has done to the economy."
---
John Lounsbury:
Since GDP has had imports subtracted, I would suggest that economic activity should be GDP + 2 x imports, the first addition to cancel the subtraction in the GDP formula and the second to add economic activity.
---
JeffDB:
If I understand it correctly and my math is ok, it seems to me that Mr. Hansen's formula would be accurate.
GDP = EA - I (the original formula)
GDP + I = EA
or in other words:
EA = GDP + I
EA = Economic Activity
I = Imports
You are right. I dug out my crumpled diagram from the waste basket and found the stupid error immediately. I should have used algebra as you did.
Thanks for the correction - I hope anyone who reads my comment gets down to yours to get straightened out.
John Lounsbury and the rest of the bears have all their facts and figures straight but it's not going to make them a penny.
Enjoy trying to be smarter than the market.
On Jul 03 02:45 PM WAKEUP wrote:
> Then, WHY do you, OR Quaker bother reading anything? Since you apparently
> don't trust anything other than your gut, why not stick with that,
> and only that? After all, reading well-thought-out articles takes
> time. You could be spending that time, listening to your gut growl.Thinker-bashers
> are a dime-a-dozen.
> Nicely done, great research. The perfect discussion for a day when
> markets are closed.
> Finally, I thought it was very pertinent that you asked the "Where
> is the stimulus??" question. While the BHO administration targeted
> so-called "shovel ready jobs", the majority so far has gone to shore
> up state programs in the agencies, and in law enforcement educational
> jobs. In the case of California, a large portion of the money is
> being used to fill in the gaps in local budgets to ensure continuity
> of services.
>
> If you look at Recovery.gov, it becomes obvious that the infrastucture
> monies were only about 1/5th of the allocation. Here in my town,
> the first monies that arrived were from various Federal departments
> that allocated the bucks to existing grant holders for important
> infrastructure projects like "prisoner reform studies" - hundreds
> of thousands of dollars given out with the admonition to "go hire
> a couple of students".
>
> So you get to have the KoolAid with a large helping of improperly
> allocating funding laced with taxpayer debt!
…"go hire a couple of students"… This is the BHO / Congressional equivalent for “green shoots.” Historically, this is the place for them to concentrate energy and resources prior to their next shot at being re-elected. It’s hard to compete for the hearts of current underage citizens that will vote for their first time in our next election with anything less than freshly printed Fed Notes, except and unless you control their educational system's unions. Perhaps enough first time voting students from last November are truly learning their lessons now, and they may offset this next wave of green shoots. Hope springs eternal.
Then too look at trucking in the US, way down with several thousands of trucking companies now out of business. Also look at the build up of diesel reserves. Things are continuing to decline and the June employment numbers, accurate or not are a little alarming.
I think we all have to reckon with the fact that we are in a very bad secular bear market where we have a lot of collateral damage. That is to say that the engine of commerce has some seriouis damage and repairing it will take a long time if at all.
Futher, it is my fundamental that a healthy economy is a manufacturing economy, however the idiots in Washington have managed to destroy manufacturing in this country. So Just how then are we to recover...with what?
I am trying to understand the OP. I just don't understand how imports have anything to do with how healthy the economy is.
Unemployment is the better statistic - It's the actual number of people who have jobs. However the UNemployment number is manipulated and massaged to exclude discouraged workers or those no longer eligible to collect.
What we really matters is the Employment statistic. How many people are working.
Furthermore - it is the quality of those jobs - are they working at minimum wage ?
On Jul 03 12:32 PM John Lounsbury wrote:
>
> Living4Dividends - - -
>
> May I join your discussion? You raise some good summary points.
> Since GDP has had imports subtracted, I would suggest that economic
> activity should be GDP + 2 x imports, the first addition to cancel
> the subtraction in the GDP formula and the second to add economic
> activity. Since the drop in imports has been much greater than the
> drop in GDP, this gives a bigger drop in economic activity quarter-to-quarter
> and year over year than we see in the GDP changes.
>
> The above discussion is difficult to follow - like speaking in double
> negatives. I actually had to get out a pen and some paper and diagram
> the effects to see them.
Hypothetical economy: If half the people work and consume the fruits of their own labor, and the other half doesn't work and borrows money from overseas and uses it to buy imports then:
GDP = 50 + I=50 --> EA=100
Suppose the unemployed half finally get jobs, stop borrowing and stop consuming imports, but instead start consuming the fruits of their own labor, then
GDP = 100 + I=0 --> EA=100
EA is the same, but the GDP has doubled because the workforce has doubled.
The consumption of less imports is not meaningful, therefore EA is not the most meaningful statistic. GDP is slightly better statistic than EA, because it shows how much americans are producing by their own labor, and thus how many of them are employed.
Summary is that all is not rose colored and don't believe what you read:
www.scribd.com/doc/170...
on Jul 03 12:56 PM John Lounsbury wrote:
> Steve - - -
>
> Your article keeps on giving and giving (as always).
>
> 1. With respect to the employment numbers, some of the failure to
> make all the features fit together lies in the part-time employment
> figures, which has driven the average work week down to 33 hours
> for all workers, part-time and full-time. I think the DOL needs to
> provide better accounting for the effects of increased part-time
> labor on the slack in the labor force. I have been working on this
> problem for several weeks, have published some thoughts (on SA and
> Real Money) and hope to have athorough analysis completed this week-end.
>
>
> 2. With respect to the ISM survey, the only rational for the latest
> data is pipeline. Production actiivity is counted when production
> starts and inventory is counted when production is complete. I don't
> know if that is the convention, but, if it is, then the inventory
> growth should show up with a lag time of pipeline length in coming
> months. If this is not the rationale, then I join you in saying WTF.
>
>
> 3. Savings and consumption may have both risen in May due to stimulus
> checks. If so, one or the other, or both will be going in the other
> direction in months without stimulus checks, unless the economy improves
> and unemployment stops rising.
>
> 4. The construction numbers are influenced by the very low level
> of stimulus spending. I read somewhere this week that less than 10%
> of the stimulus money has been disbursed by the federal government
> and less than a third of that has actually been committed to start
> work by states and local governments. It seems that 97 -98% of the
> construction stimulus remains to be deployed.
>
> Steve, how do you do such a comprehensive job on the state of the
> economy each week? Some consultants are being paid big bucks to do
> less than this for their paying clients.
>
- correlation between income equality and economic/social stability is nearly 100%. one need only look at Clinton, raised taxes on the wealthy, and generated overall economic increase (NOT economic growth as touted by the Right Wing); versus Bushies who did and got the opposite. They ain't no such thing as free lunch; you can't get economic stability if government abets the flow of income/wealth from the many to the few.
- the top 1% now (2007) take 22% of income
- 40% (2007) of corporate profit is from "financial services"
- jobs created are lower income compared to jobs lost
The implications: until such time as the wealth is spread around more than during the Bushie years, 15% unemployment, and the attendant social unrest will be the new normal.
They ain't no such thing as a free lunch.
This uneducated "gut" instinct won me a 20% return over an 8 month period. Had I been more experienced and educated I believe I could have returned 100 to 200 % but I often sold too soon.
With no experience but a pretty sharp eye I formed an opinion that I should “sell in June and sing a tune". It seemed clear that a "bad moon" was rising. I actually closed out all of my stocks on Wednesday July 1st, one day past my instinct which cost me 10% on my selected stocks. Still finishing 20% up I am very pleased with the results.
Now that anyone who reads this will know my true level of knowledge I ask for information. I signed up for Market Watch emails in my first week and have been able to derive very intelligent ideas and direction from the beginning. Some of the terminologies still throw me but all in all it has been terrific.
This article to which each of you responded here is in my opinion written at the most opportune time. I firmly believe we are on the brink of a much bigger fall than we have seen in the past. It is my business experience that tells me this not my investment experience. If I am right I will re enter the market at some point down the road at perhaps 5000. Until then I will stick to production equipment for my company and real estate.
Thank all of you for your input as it is always entertaining and quite often educational.
Also, agree with you regarding "creation of new jobs has mysteriously doubled in the last few months".
In past recessions Keynesian Deficit Government Spending and QE were never deployed simaltaneously on this scale. That the date being currently collected may well be data collected from completely uncharted waters. Hence the date has no historical match.
Doesn't tell us much about the Economy but it does explain why the stock market has behaved as it has this Spring and why it is now changing direction.
On Jul 03 08:58 PM UseAllUWantwePrintMo wrote:
> As always I stand in awe. Not so much as when confronted by God Himself
> but certainly impressed by the interest and sustained thought given
> to these articles and the reasonably objective display of the resulting
> data. I must admit green thumbs in the area of investing as I always
> put my money into business and durable goods (personal inventory)
> prior to October of 2008. Observing the significant decline I realized
> a once in a lifetime opportunity to invest with significantly low
> risk of loosing principle and tremendous ability to generate a nice
> return.
>
> This uneducated "gut" instinct won me a 20% return over an 8 month
> period. Had I been more experienced and educated I believe I could
> have returned 100 to 200 % but I often sold too soon.
>
> With no experience but a pretty sharp eye I formed an opinion that
> I should “sell in June and sing a tune". It seemed clear that a "bad
> moon" was rising. I actually closed out all of my stocks on Wednesday
> July 1st, one day past my instinct which cost me 10% on my selected
> stocks. Still finishing 20% up I am very pleased with the results.
>
>
> Now that anyone who reads this will know my true level of knowledge
> I ask for information. I signed up for Market Watch emails in my
> first week and have been able to derive very intelligent ideas and
> direction from the beginning. Some of the terminologies still throw
> me but all in all it has been terrific.
>
> This article to which each of you responded here is in my opinion
> written at the most opportune time. I firmly believe we are on the
> brink of a much bigger fall than we have seen in the past. It is
> my business experience that tells me this not my investment experience.
> If I am right I will re enter the market at some point down the road
> at perhaps 5000. Until then I will stick to production equipment
> for my company and real estate.
>
> Thank all of you for your input as it is always entertaining and
> quite often educational.
On Jul 04 09:31 AM John Bowman wrote:
> How do illegal immigrants fit into the picture, both employed and
> unemployed?
Well, the honest question quoted seems as good a time as any to point out that we have killed fifty million pre-born producers and consumers in the last forty years since Roe. Our population has remained at bare reproduction, no growth, in spite of sucking up half of Mexico, while Europe and Asia (for whom we are consuming) continued to contract in population, thus imbalancing the whole shebang and causing the pressure in the US to consume on credit, to issue credit to shaky borrowers. We have chosen to ignore the implication derived from economists like Georgetown University's John McNeill, "A big part of economic growth to date consists of population growth," like it or not, and we don't like it, it means the party is over, and so we turn away, whether one calls it kool-aid or denial.
Do we really understand that even though GDP falls, if population falls faster, there's MORE per capita. We made a pact with the devil and we're eating pie as fast as we can. We're gonna pop.
A solution, maybe the only solution: wipe out the last fifty years of population assumptions, go back to traditional families. This will take convincing women. Do what it takes. Have lots of kids, don't worry about population but enjoy the growth. It will not 'spoil' the citizenry because it will be distributed over more people, as nature is desinged for. Elect distributist governments that will gently over time break up monopolies and fund cooperatives, most importantly the cooperative development of space. Go to space. Free energy and weightless manufacturing are waiting for us there.
>
> However, nobody can deny that Americans are producing and consuming
> less now. Any way you want to look at the economic pie, it has clearly
> has shrunk.
Obvioulsy more to it than that simple example, as things like job losses for the store workers etc are not taken into account - but it points out just one more of many reasons why GDP is not a very useful number. One the other hand the medical bills for that add to the GDP :)
If an American multinational company has a foreign subsidiary produce a part and sell it in America it counts as American GDP.
So Intel has a computer chip created in China, by Chinese workers and designed by Chinese engineers at Intel China . All the wages are distributed in China. It is sold inside a computer at Best Buy in America. All of the money associated with that chip counts as US GDP. Unfortunately since no US designers or manufacturing workers were involved there are no US wages and hence no tax income for state and federal coffers excepting sales tax. And the US will not tax Intels foreign profits so to speak. So America governments go bankrupt while US GDP keeps rising, as GE, IBM, Intel, GM, Ford and every other multinational offshores. The American people need to rise up and demand only American made products be sold in America. Otherwise the multinationals need to slammed with tariffs or stripped of their 'citizenship' and declared 'enemies of the state' or ANTIAMERICAN traitors that go directly to the state and federal governments. Otherwise "AMERICA IS TOAST".
just to keep things real, when an item is imported - regardless of whether it is an american company or not - it is subtracted from gdp.
i have no issue with items being imported - as long as the net effect is jobs equilibrium and trade balance. but this is the problem as the government is not managing the effects of importation, and we are a net exporter of jobs.
this great recession may have put us over the tipping point. many of the existing jobs lost may be lost permanently. we are not thinking clearly here as:
- on one hand we believe in the mechanics of free trade; and
- on the other hand we ignore that this means we most be competitive with goods and services produced in other countries.
we increase minimum wage (making wages even more uncompetitive). we increase taxes (other countries rebate taxes for exported items). we are thinking about forcing health care costs on business (do you think the vietnamese do this?).
we cannot have it both ways unless you want to dig your own grave.
Thanks for posting your analysis. It is an interesting summary of various data.
At the beginning of the article you state "In 1Q2009, the economy was falling at an annual rate of 15%."
That is obviously a severe rate, and indicative of a Depression. Do you believe we are in one or heading toward one? I've recently written about my own thoughts on the subject but would be interested in yours.