PeakTrader.com

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PeakTrader:

It’s likely “QE – infinity” has become increasingly inefficient in forcing money into circulation. It’s sort of like putting more water into a cloth bag, making the bag bigger and bigger, with little water seeping out. Even with QE winding down, the bag is getting bigger, and that also concerns the Fed – how to wind down the $4 trillion of asset purchases? It’s uncharted waters.

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“…many people perceive (incorrectly) economic performance in the 80s as being much better than performance in the 70s…”

That statement is misleading. A severe recession was needed, in 1981-82, to disinflate the economy, after it was inflated, beginning in the early 1970s, to raise nominal GDP and therefore raise real GDP.

Average annual per capita real GDP growth

1970-79: 2.49%
1980-89: 2.55%

However:

1973-82: 0.99% (long-wave bust cycle)
1982-90: 3.14% (expansion – trough to peak – yearly)

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Also, I find it amazing how, after 1980, some people conveniently ignore trade deficits subtract from GDP growth, enormous U.S. capital creation from efficiencies in production, including in older industries and multinationals, vast investment in emerging industries, and inflation was likely understated in the 1970s and overstated after 1980, because of the technology boom, resulting in higher quality, along with more new products introduced.

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Moreover, if low income workers or households find their living standards haven’t improved much, e.g. compared to the 1970s, it can be blamed on low income wages not keeping up with productivity, much more regulation, which is regressive, a higher cost of living, including in education, health care, energy, housing, etc. more regressive taxes, fees, fines, fares, tolls, etc., and more disincentives to work.

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There are some false assumptions (on this blog) I’ve explained before.

The Fed has done a brilliant job promoting economic growth, ceteris paribus.

The Fed deserves a lot of credit for QE (pun intended).

The Fed has nothing to do with lending standards set by Congress, and has to follow laws passed by Congress.

Asset booms and busts are only residuals of monetary policy, not to be confused with the production of goods & services.

Greenspan was likely the best Fed chairman the country ever had. For example, in the mid-’90s, Greenspan believed the data overestimated the potential for inflation. So, the Fed promoted faster growth, which turned out not to be inflationary.

The “$800 billion” a year of potential output didn’t go to the rich. It went to no one, because it wasn’t produced.

Supply and demand are both sides of the same coin. You can’t have one without the other. Consumers are also producers.

The U.S. has a demand problem, in part, because U.S. consumers bought foreign goods and foreigners bought U.S. Treasury bonds. Rather than those dollars being “refunded” to U.S. consumers, they were spent by the U.S. government.

And, all we got for an additional $5 trillion of federal debt over the past few years is a deep and long depression, where the U.S. continues to underproduce by about $1 trillion a year.

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“…an increase of 1 percentage point in the top 1 percent’s share of pre-tax income reduced growth of income for the median household by about USD530.”

It’s interesting he uses pre-tax income. What about income after taxes?

Anyway, the regressions are weak in explanatory variables. I’m sure, many significant factors are omitted.

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Bruce, I don’t see any explanatory variables, just correlations using pre-tax income. So? The correlations explain nothing.

For example, it’s possible when the top 1% of income rises substantially that causes the top 20% of income to rise substantially too. More taxes are collected and spending on disincentives to work increase, e.g. for the bottom 40%, which reduces median income.

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Bruce, the statement and my response to the statement is plausable, and may be one of many statistically significant factors. Certainly, the hypothesis wasn’t tested in the article above, which is very weak.

“An increase of 1 percentage point in the top 1 percent’s share of pre-tax income reduced growth of income for the median household by about USD530.”

It’s possible when the top 1% of income rises substantially that causes the top 20% of income to rise substantially too. More taxes are collected and spending on disincentives to work increase, e.g. for the bottom 40%, which reduces median income.

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