PeakTrader.com

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PeakTrader:

Lower tax rates, since 1981, facilitated one of the greatest eras of U.S. prosperity, the “long boom,” from 1982-07, where U.S. living, labor, and environmental standards rose at steeper rates.

Just watch a episode of “Kojak,” to see what I mean

And, this deep depression, and train wreck, since June 2009, is completely unnecessary.

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U.S. average annual per capita real GDP growth

1982-2007: 2.30% (height of the Information Revolution)
1946-1981: 2.11% (including rebuilding Europe and Japan)

It should be noted, trade deficits, which increasingly rose from zero in 1980 to 6% of GDP by 2006, subtract from GDP.

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Much of China, for example, has been a U.S. factory, not counted in U.S. GDP. The U.S. offshored low-end manufacturing, imported those goods at lower prices and higher profits, and shifted (limited) resources into high-end manufacturing and emerging industries.

Consequently, the U.S. not only leads the world in the Information and Biotech Revolutions, it leads the rest of the world combined (in both revenue and profit). The only way to move from one economic revolution into the next is through efficiencies. The U.S. leads the world in the Agricultural-Industrial-Information-Biotech Revolutions (in efficiency of production and market power).

Moreover, China sold its goods too cheaply and lent its dollars too cheaply, to generate a virtuous U.S. cycle of consumption-investment, to raise or maintain its employment.

Unfortunately, the U.S. government kept, spent, and squandered too many dollars rather than “refund” those dollars to U.S. consumers, in the form of tax cuts, to allow the spending to continue (a higher level of consumption also raises saving, and so income rises).

Here’s what James Fallows said about China:

James Fallows studied American history and literature at Harvard, where he was the editor of the daily newspaper, the Harvard Crimson. From 1970 to 1972 Fallows studied economics at Oxford University as a Rhodes scholar.

January/February 2008

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is. Economists will also point out that, despite the glitter of China’s big cities and the rise of its billionaire class, China’s people have been living far worse than they could. That’s what it means when a nation consumes only half of what it produces, as China does.

Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. The average cash income for (Chinese) workers in a big factory is about $160 per month. On the farm, it’s a small fraction of that. Most people in China feel they are moving up, but from a very low starting point.

This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.

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JazzBumpa, percentages can be misleading. For example, if I lose 50% and then gain 50%, I lost 25%.

There were only two recessions from 1982-07, one mild and one moderate.

Also, I may add, I cited “Kojak” to show how people lived, worked, and what a mess the environment was in the 1970s compared to the 2000s.

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Per capita real GDP growth from 1983-89 (seven years) averaged 3.45%, and from 1982-90 (nine years) averaged 3.14% (and even higher from trough to peak). So, it was a strong, and long, expansion, with a V-shaped recovery.

The increase in defense spending not only won the Cold War, it created a “peace dividend,” which facilitated growth in the 1990s (as defense spending declined to a multi-decade low as a percent of GDP, even with increasingly larger trade deficits, which subtract from GDP growth).

It should be noted, Reagan wanted to cut other spending programs and made deals with Congress to raise taxes for spending cuts, which didn’t work out well for Reagan.

Of course, disinflation, lower interest rates, and a strong expansion will increase the demand for credit, and federal deficits or surpluses are more accurately measured as a percent of GDP.

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Marko, my data are from the BEA. Your data make no sense.

For example, under the Clinton economy from 1995-00, actual output exceeded potential output, the country was beyond full employment, real wages rose, and there were budget surpluses. Oil and commodity prices were very low, there was a “peace dividend,” and the Baby-Boomers (born between 1946-64) reached their peak productive years (i.e. “prime-age” or 35-54). We were in a spectacular structural bull market. It was one of the greatest periods of domestic growth.

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Thanks to Wall Street, to a large extent (yes, it adds tremendous value to the U.S. economy in many ways), the U.S. offshored low-end manufacturing, imported those goods at lower prices and higher profits, and shifted freed-up (limited) resources into high-end manufacturing and into emerging industries. China, like Japan before it, is, to a large extent, a U.S. factory (not included in U.S. GDP).

U.S. Manufacturing: Output vs. Jobs Since 1975
Jan 24, 2011

Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31%. While these American job losses are indeed sobering, they are not an indication of declining U.S. competitiveness. In fact, these statistics reveal that the average American manufacturer is over three times more productive today than they were in 1975

Chart of U.S. manufacturing real output:

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

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Beverly, credit should be given where it’s due. Wall Street has redeployed capital, to maximize capital creation, diversified risk, globally, and facilitated massive efficiencies, for example.

The only way to move from one economic revolution into the next is through efficiencies. The U.S. leads the world in the Agricultural-Industrial-Information-Biotech revolutions (U.S. manufacturing, for example, is most efficient).

Export-led economies, like Germany and Japan, haven’t moved into the Information and Biotech revolutions as quickly as the U.S., where the U.S. not only leads the world, it leads the rest of the world combined (in both revenue and profit). Germany and Japan produce a lot of manufactured goods, but are much less efficient than the U.S..

Of course, Germany, for example, has more manufactured jobs per output that pay a little more than the U.S. (although, Western Europe per capita real income is over $10,000 a year less than the U.S.). I agree, wages could be higher in the U.S., because much more earnings flow into profits rather than wages.

Average Cost Of A Factory Worker In The U.S., China And Germany
03/ 8/2012

“U.S. factory workers…they’re really productive. In fact, U.S. factory workers produce $73.45 per hour in output, one-third more than German factory workers…German factory workers…their wages are 11 percent higher than those in the U.S…the average productivity of German factory workers is $55.21 per hour.”

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One reason U.S. manufacturing output is one-third higher than Germany is the U.S. has more market power.

Regarding costs, the U.S. has abundant labor and capital (including from the capital account surpluses). An increasingly higher-skilled or higher-educated U.S. manufacturing workforce, as it became smaller and produced more with less, and low interest rates, adds to productivity.

The federal government made money on TARP. So, “Main Street” got its money back with interest. Also, note, the huge Obama budget deficits would’ve been even worse without the money flowing back to the federal government from TARP.

If you don’t like idle labor, then you can pay them to dig holes and fill them back up again, or better yet, reduce regulations, cut taxes, and cut government spending, to expand the economy at a much faster rate. We need to unleash growth. The unemployed deserve it.

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Jack, if one person can produce the same level of output as 10 people, that’s one form of efficiency. Do you think that’s good, although nine workers lose their jobs?

I know the EU-17 has per capita real income over $10,000 a year less than the U.S.. I didn’t know Germany’s per capita real income. However, it seems, Germany’s per capita real income is over $10,000 a year lower than the U.S. too (it should be noted Germany is an export-led economy, unlike the U.S., which is a consumer-driven economy).

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