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PeakTrader said...

Jon, thanks for showing the inflationists a new way.

They don't seem to understand that labor productivity changes, technology changes, the speed of innovation changes, investment in capital goods changes, etc.

It's more likely inflation has been overstated than understated over the past 30 years, because appropriate adjustments have been too little and too late.

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Perhaps, they're confused, because income inequality increased.

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Bart, the tail doesn't wag the dog.

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Bart, ignoring changes that influence inflation is, well, ignorant.

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Labor economists refer to the 35-54 age group as "prime-age." The second most productive group is the 55-64 age group (based on education, experience, and training).

The 80 million Baby-Boomers born between 1946-64 began to enter prime-age around 1982, which coincides with the acceleration of the Information Revolution.

Also note, the structural bull stock market was from 1982-00.

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Morganovich, there was a "structural break" after 1982, which increased productive capacity and caused disinflationary growth.

Per capita real GDP growth averaged 2.22% from 1982-2007 compared to 1.56% at the height of the Industrial Revolution from 1871-1914.

Also, monetary and fiscal policies continued to improve in smoothing-out business cycles, which moved the economy towards optimal growth and raised per capita real GDP.

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Moreover, the much stronger per capita growth after 1982 is understated, because the U.S. was able to consume more than produce in the global economy, and in the long-run, since around 1980.

Trade deficits, which subtract from GDP, reached $800 billion a year by the mid-2000s or 6% of GDP.

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Juandos, I stated before, restrictive monetary policy in 2007 was the initial cause of the recession (perhaps, Bernanke wanted to prove he wasn't an inflation dove).

The Bush tax cut in early '08 gave the Fed time to catch-up easing the money supply.

The U.S. was on a path to a mild recession until Lehman failed in Sep '08.

Greenspan, on the other hand, believed the economy could expand faster without fueling inflation in the '90s and allowed accommodative monetary policy. He was correct.

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Juandos, perhaps, you didn't see my prior comment:

Resources are deployed inefficiently in boom-bust cycles, both in the boom and bust phases, because of economic strain and slack.

List of recessions in the United States - Wikipedia

Recessions in the Industrial Revolution - 1871-1914

Period - Percent Decline of Business Activity

1873-79 - 33.6%
1882-85 - 32.8%
1887-88 - 14.6%
1890-91 - 22.1%
1893-94 - 37.3%
1895-97 - 25.2%
1899-00 - 15.5%
1902-04 - 16.2%
1907-08 - 29.2%
1910-12 - 14.7%
1913-14 - 25.9%

Recessions in the Information Revolution - 1982-2007

Period - Percent of Contraction

1990-91 - 1.4%
2001 - 0.3%

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Morganovich, you only need to look as far as your computer screen to begin to realize how valuable the Information Revolution has been.

You give the false impression that U.S. economic growth slowed when it actually accelerated, which is remarkable given small economies tend to grow faster than large economies.

Obviously, the U.S. economy became increasingly more efficient, including through the "knowledge economy."

Here's what Dr Perry wrote:

Capitalism and Markets Fuel Economic Growth
January 28, 2009

"Between 1800 and 1904, real GDP per capita grew in the U.S. at 1.5% per year.

The 1.5% annual growth translated into almost a 5 times increase in per capita real GDP between 1800 and 1904, from $1,069 to $5,202.

As impressive as the 1.5% real annual growth was in the 19th Century, the average growth rate in the 20th Century increased by more than a third, to above 2% per year from 1904-2008.

Because of the higher growth rate, real (per capita) GDP increased more than 8 times between 1904 and 2008, from $5,202 in 1904 to $42,675 in 2008.

If annual growth had continued at 1.5%, real GDP per capita today would be only $24,475...instead it's actually 74% higher at $42,675."

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Here are some average per capita real GDP growth rates over selected periods:

1813-1910 +1.36% (Before Fed)
1913-2010 +2.00% (After Fed)

1920-1929 +2.43% (The "Roaring 20s")
1929-38 -0.54% (The "Great Depression")

1946-73 +2.26% (Europe and Japan Rebuild)
1973-82 +0.96% (Long-Wave Bust Cycle)

1982-07 +2.22% (Information Revolution)
2008-10 -1.13% ("Great Recession")

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How the per capita real GDP growth series (above) is constructed:

"This uniform growth rate is not obtained by averaging the year-to-year percentage changes in the observed value of the series.

It is the hypothetical constant year-to-year growth rate necessary to take the beginning-year value of a series to its ending-year value."

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I think, David Wessel of the Wall Street Journal has an idea where's the recession:

When Even Pessimism May Be Too Optimistic
July 25, 2012

"We know growth is painfully slow, and slowing...Retail sales have fallen for three months in a row. Consumer confidence is sinking. Manufacturing, which had been vigorous, shows signs of weakening. Government belt-tightening is restraining growth.

Europe, which still buys about one-fifth of U.S. exports, is in recession, and the rest of the world is slowing. Drought is sure to push up food prices, pinching consumer spending on other things.

State and local governments are squeezing spending and raising taxes as federal stimulus aid wears off. Washington is on track to do the same, abruptly if Congress fails to avoid spending cuts and tax increases...to avoid this "fiscal cliff."

Because of Washington's partisan fiscal paralysis, no matter how much worse the near-term outlook gets, Congress is unlikely to come to the rescue soon with another dollop of tax cuts or spending increases."

My comment: Moreover, the Fed is constrained and Obamacare is a tax hike.

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George W Bush (2008) - "I’ve abandoned free market principles to save the free market system."

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PeakTrader said...

Shilling: New recession has begun
Aug. 3, 2012

Earlier this year, Shilling predicted a global recession would occur in 2012; now, it’s well underway in Europe and he said it already has hit our shores.

“I think the U.S. is in recession,” he said.

But here’s the good news, if you can call it that: He expects this to be a brief, mild, cyclical recession, not the kind we had in 2008-2009.

“I think the recession started in the second quarter and will run about a year,” he said.

He predicts a decline in GDP of 3.5% from peak to trough “because I’m not looking for a financial crisis.

Europe, however, which does have a fiscal crisis, a financial crisis and everything in between should show a 6.5% decline from peak to trough.

[May 31, 2012 - According to the National Bureau of Economic Research (NBER), the most recent recession lasted 18 months and output contracted by 5.1 percent from peak (December 2007) to trough (June 2009).]

A Gary Shilling - Bachelor’s degree in physics, magna cum laude, from Amherst College where he was elected to Phi Beta Kappa and Sigma Xi. Master’s degree and Doctorate in Economics at Stanford University.

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Morganovich says: "this year was the worst june-jul since 2003, a rotten year for jobs."

The U.S. created 20 million new jobs in the 1991-00 expansion and few of those jobs were lost in the 2001 recession (which was so mild per capita real GDP didn't fall in 2001).

The jobs recovery in the early 2000s was slow, because more jobs were being added to the mountain of jobs in the 1990s.

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Jon, the U.S. hasn't generated a self-sustaining virtuous cycle of consumption-employment, even after massive government spending and quantitative easings.

The economy has been slipping, since late last year.

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I suspect, U.S. median household income was roughly flat in the 2000s, because most immigrants, and their children, had lower skills than the domestic population.

A hundred years ago, most immigrants had roughly the same skills as the domestic population.

Also, there were much fewer high-skilled immigrants compared to low-skilled immigrants and there were more high and low skilled immigrants compared to average skilled immigrants.

Nonetheless, I recall in the mid-2000s, many immigrants with low-skills, and who could barely speak english, were able to buy houses and new or almost new autos.

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Moreover, it should be noted trade deficits subtract from income (output = GDP = income).

U.S. trade deficits reached $800 billion in the 2000s (or 6% of GDP).

So, U.S. living standards rose faster than what was reflected in income growth.

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VangelV says: "A hundred years ago most immigrants were low skill workers who could not even speak the language."

So were most of the domestic population, except they could speak the language (half of the U.S. population were farmers):

Immigration and the American Industrial Revolution From 1880 to 1920

"Immigrants were no less skilled than native born workers. The real question, in our judgment, is not the skill level of immigrants, but their role in filling the demand for labor in manufacturing and other key sectors of the emerging industrial economy.

Immigrants purchased homes, opened small businesses and invested heavily in the education of their children...immigrants to the United States also brought European technology that increased the productivity of American industry."

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Morganovich says: "...the evidence that americans are worse off than a decade ago in terms of real wealth is pretty overwhelming...people talk about going back in time and stopping hitler. personally, i'd go for Samuelson...bernake makes martin and burns look like karl pohl."

That statement reflects an overwhelming ignorance of economics. Why not blame fire departments for fires too?

Obviously, you'd rather get rid of the firefighters, like Bernanke and Samuelson, and keep the arsonists, like Obama, Castro, and Chavez.

You never understood real wealth. Massive idle resources are unnecessary.

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It may be a little harsh to equate Obama with Castro and Chavez.

Obama didn't start this massive fire (although, he would've voted for it).

However, he hasn't really done anything effective to put it out, unlike Bernanke and his team, who've done as much as they can.

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Immigration likely made the U.S. a superpower in the late 19th century - immigrants with roughly the same skills as the domestic population. So, when population doubled, GDP doubled.

Per capita real GDP growth was slow in the 19th century compared to the 20th century, particularly in a country rich in natural resources.

There was a much better understanding of economics in the 20th century, because of economists like Paul Samuelson.

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Bart, obviously, you ignored the real wealth created up to 2007 and the real wealth destroyed after 2007.

"...ignore the incontrovertible proof in my CPPI..."

I haven't ignored it, the "proof" isn't really there.

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VangelV, I guess, you won't be happy until we go back to 19th century business cycles.

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Ron, all you have to do is compare the U.S. economy today to the 1970s to see living standards, labor standards, and environmental standards are substantially higher today (see episode of Kojak).

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Real Disposable Personal Income Per Capita is way up.

Chart:

http://research.stlouisfed.org/fred2/series/A229RX0/

"Disposable personal income definition: The total amount of money available for an individual or population to spend or save after taxes have been paid."

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Dr Perry said: "If annual growth had continued at 1.5% (the 1800-1904 rate), real GDP per capita today would be only $24,475."

Even real disposable personal income per capita (i.e. after tax income) is much higher than that today.

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The implication of my statement above is real income is $8,000 a year higher than it would've otherwise been and there's no taxpayer cost for the federal government, because real disposable personal income per capita is about $33,000 in 2012.

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One person's loss is another's gain. Transfer payments don't just disappear (even when working for the federal government).

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