Category: Economics

Saturday Soother – January 28, 2023

The Daily Escape:

Outside Mayfield, Utah – January 2023 photo by Robert Stevens

Wrongo read a review of two books on US agriculture in the New York Review of Books. The books are “Perilous Bounty: The Looming Collapse of American Farming and How We Can Prevent It” by Tom Philpott, and “The Farmer’s Lawyer: The North Dakota Nine and the Fight to Save the Family Farm” by Sarah Vogel.

The review is written by Ian Frazier. This gives you an idea of his writing:

“We are eating a big hole in the middle of the Midwest and sucking up California’s ancient aquifers until the land collapses like an empty juice box. The awe that new arrivals from other countries feel when they see the bounty in a US supermarket is an illusion—more like what one might experience when stepping from a cold night into a nice, warm house where they’re burning the furniture. In short, we are plundering the natural sources of our food production and can’t go on this way.”

All of this is Big Agriculture’s doing. Corporate farming controls most of our agriculture, but it’s facing the challenge that American consumers can eat only about 1,500 pounds of food per person per year and the US population is only growing at about a half percent/year. But the investors behind Big Ag want more profit than supplying food to a slowly growing US population. So their strategy is to get Americans to eat more, and to find new foreign markets.

Philpott concentrates on just two of the US’s top food-producing regions: California’s Central Valley and the Iowa-centered Corn Belt.

The CA Central Valley constitutes about half of California’s cropland. Smaller farms concentrate on fruits while the large corporate farms mostly concentrate on nuts. Nuts are a highly profitable crop with low labor costs, but they need enormous amounts of water: To grow a single almond requires about a gallon of water.

Frazier says that almond groves cover about a fifth of the San Joaquin Valley and consume four times as much water as the city of Los Angeles:

“…I eat plenty of nuts myself, including almonds. Looking in the pantry, I see I possess the almond-growing equivalent of a few dozen bathtubfuls of California water.”

Philpott points out that TIAA, a leading provider of financial services owns a 40% stake in Treehouse California Almonds. The Farmland Index, which tracks the performance of agricultural investments, has outperformed the Standard & Poor’s index 11.8% to 9.6% in recent decades.

One problem with California’s Ag dominance is that it takes an increasing share of an increasingly scarce water supply. When irrigation water from snow and rain is scarce, as it has been for decades, farmers pump more of California’s groundwater. Nobody can say when the groundwater will run out because nobody knows how much CA has.

Turning to the Midwest, Frazier points out that the Corn Belt is one and a half times the size of California’s farming acreage. The Corn Belt uses so much fertilizer that it delivers a huge amount of polluted agricultural runoff via the Mississippi down to the Gulf of Mexico. Off of Louisiana, there’s a marine dead zone the size of New Jersey.

Huge companies dominate Midwest farming, from fertilizer and seed manufacturers to large and expensive farm machinery equipment. There is concentration in the companies that buy, process and ship the grain: Three companies: Cargill, Archer Daniels Midland (ADM), and Ingredion control 87% of the US corn market. Four companies: ADM, Bunge, Cargill, and Ag Processing handle 85% of the soybeans.

It is cheaper to raise pork in the US than it is in China because our feed is cheaper. Smithfield is the world’s largest pork producer and is Chinese-owned. AND, the 23 million hogs in Iowa along with Iowa’s other livestock produce as much excrement every year as do 168 million humans.

This data are called “fecal equivalent”. Iowa produces the same amount as the world’s eleven largest cities. Shouldn’t that be on Iowa’s license plate?

But the headline is that mid-sized and small farms are dying. Frazier says that midsize farms are too small to compete with the corporate farms in volume and price. OTOH, they are too big to be supported by the farmers’ outside income. In her book, Sara Vogel says the midsize farm is in danger of going extinct:

“In today’s economy [they] wouldn’t have a prayer.”

Frazier closes by wondering who in agriculture will work to save our environment. He concludes that Big Ag won’t try. A disturbing, but important article.

Time to take a break from politics and economics. It’s also time to ignore that inflation is down and an asteroid narrowly missed the earth. Instead, let’s relax with our Saturday Soother. Readers who are into football will spend their Sunday watching the NFL’s division championship games. That will probably include Wrongo. To kick off our weekend, listen to Alexandra Whittingham and Stephanie Jones perform “Helping Hands” by Sergio Assad. Assad is a Brazilian guitarist. We have featured Whittingham here before, but Jones is new to us:

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Keep Your Politics Off Of My Economy

The Daily Escape:

Rachel Carson National Wildlife Refuge, Kennebunk, ME – January 2023 photo by Eric Storm Photo

From the WaPo:

“The economy posted another consecutive quarter of steady expansion between October and December, with economic activity increasing at a 2.9% annual rate. Consumer spending contributed to the strong fourth-quarter showing, especially given the slumps in large parts of the economy, including housing and manufacturing.”

The latest GDP figures show we have a resilient but slowing economy. Some of the slowdown is intentional, brought on by the Federal Reserve’s aggressive increases in interest rates as a way to control our high inflation. The Fed raised interest rates seven times last year, expecting that higher borrowing costs would lead businesses and households to cut back enough to slow the economy and curb price increases.

That’s happened in the real estate market, and to a lesser degree, in manufacturing. WaPo quotes Joseph LaVorgna, chief economist at SMBC Nikko Securities America:

“You may see [growth] and think the economy is out of the woods, but that would be entirely the wrong read….There are a lot of variables that are all pointing in the same direction: There’s a housing recession. Manufacturing looks like it’s approaching recession. We’re seeing weakness in temp hiring. And it’s doubtful we’ve felt the full effects of all of the Fed’s rate hikes.”

So Biden can take credit for an excellent recovery so far, but many major banks are still forecasting an economic downturn this year. As Diane Swonk, chief economist at KPMG says: (emphasis by Wrongo)

“Momentum has already begun to slow in response to rate hikes, but the bulk of the slowdown is yet to come….The Fed’s goal is to let growth stall out in 2023.”

So are we in for a bad downturn that will persist through the 2024 elections? It’s a possibility if we keep playing politics with the economy.

We need to let people know that inflation has been easing month after month while the unemployment rate has held steady at about 3.5%. The year-over-year change in the consumer price index peaked at just over 9% in June, and since then it’s fallen to just under 6.5%. Other inflation indicators like the producer price index (PPI) have trended lower from prior highs as well.

And the world’s biggest inflation scold, economist Larry Summers who has been saying for 2+ years that we need a deep recession to drive out high inflation is sounding less hawkish: (brackets by Wrongo)

“I still think it’s going to be hard…[but]…You have to recognize that the figures are better than somebody like me would have expected three months ago. It’s still a very difficult job for the Fed, but the situation does look a bit better.”

From prior experience, Larry knows how to prepare, cook, and eat crow.

Can the Democrats and Republicans get out of the way of our currently good economic growth? From Heather Cox Richardson:

“On Monday the Wall Street Journal reported that median weekly earnings rose 7.4% last year, slightly faster than inflation. For Black Americans employed full time, the median rise was 11.3% over 2021. A median Hispanic or Latino worker’s income saw a 4.8% raise, to $837 a week. Young workers, between 16 and 24, saw their weekly income rise more than 10%. Also seeing close to a 10% weekly rise were those in the bottom tenth of wage earners, those making about $570 a week.”

Overall, the economy seems to be on solid ground at least for now. But the average American probably doesn’t view it that way.

And who will the voter reward or blame in 2024? We’ve seen that the House Republicans want to hamstring Biden and the national economy by holding the debt limit increase hostage to budget cuts, possibly in Social Security and Medicare.

So the Dems countered by asking new Speaker McCarthy for a plan on what would be axed from the social services budget. Now, Roll Call is reporting that the GOP seems to be changing their strategy on the fly:

“House Republicans are mulling an attempt to buy time for further negotiations on federal spending and deficits by passing one or more short-term suspensions of the statutory debt ceiling this summer, including potentially lining up the deadline with the end of the fiscal year Sept. 30.”

They’re trying to time the engineering of a debt default crisis to coincide with the government’s new fiscal year, thinking this creates a “mega crisis” of default/government shutdown that will bring Biden to agree to the egregious spending cuts the MAGAs want.

But this should help Democrats. First, Democrats will be able to point to the MAGA cuts as being far outside the American mainstream. Second, the GOP reckless attempt at hostage-taking will be on display just as the election season ramps up.

Are the wheels of the Republican clown car already coming off?

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Monday Wake Up Call – December 19, 2022

The Daily Escape:

Skiing Santas at Sunday River Ski Resort, Newry, ME – Dec. 11, 202, AP Photo/Robert F. Bukat

(As we cruise towards Christmas, each day this week we will feature pictures of Santas and/or Christmas trees, along with loopy songs vaguely representative of the season. You’ve been warned.)

The war in Ukraine has once again reminded policy makers of the importance logistics plays in winning on the battlefield. In reading a Defense One post by Marcus Weisgerber, Wrongo learned that demand for weapons by Ukraine — combined with worker shortages, inflation, and other factors — has made it more difficult and more expensive to produce the most in-demand weapons. This describes the current problem:

“The US has sent 13 years’ worth of Stinger production and five years’ worth of Javelin production to Ukraine…”

That’s in 10 months. And a newsletter by CDR Salamander states the overall problem clearly:

“The Ukrainians would have run out of weapons and ammunition months ago if the former Warsaw Pact nations in NATO didn’t empty what inventory they had left of Soviet Era weaponry and the rest of NATO led by the USA didn’t wander the world trying to soak up as much available inventory money could buy. That and the rapid adoption of NATO compatible equipment by the Ukrainians is helping, but that has revealed other problems – who says the West has enough to give?”

It is said that amateur warriors deal in tactics while professional soldiers deal in logistics. Both sides in this war are burning through their weapons stockpiles at unsustainable rates even though the war seems (at least momentarily) to be a stalemate. The US and NATO had little in stockpiled weapons even before the Russo-Ukrainian War, able to mount only a very limited or short war as they did (poorly) in Libya. This has been true for the past 20 years. Now those limitations are out in the open.

US defense spending could rise 10% percent in 2023. A good chunk of the increase is meant to rush weapons to Ukrainian forces fighting the Russian invasion, along with replenishing the US missiles, artillery and other weapons sent to Ukraine.

But the sad truth is that it isn’t clear that US or European defense companies, along with the thousands of small businesses that supply them, can meet this increased demand. There are plenty of reasons, including worker shortages and supply-chain disruptions that have been exacerbated by the pandemic and the global current economic outlook.

And the Pentagon was slow to award contracts to rebuild weapon stockpiles. Those that were awarded quickly had to be fast-tracked by top-level Biden administration officials. And it gets worse. Many defense firms are short-staffed relative to what’s needed to fulfill anticipated Pentagon orders to replace weapons sent to Ukraine. Defense One quotes Raytheon Technologies CEO Greg Hayes:

“The real question is, can we actually build it?….They can appropriate all the money, but…if we take months and months and months to get on contract, that’s months and months of delay.”

Raytheon builds the Stingers that are so depleted.  They are willing to ramp up, but it takes investment and lead time to grow production. More from Hayes:

“We want to be prepared to meet the demand that’s out there….I wish I could snap my fingers and then all of a sudden miraculously, throw a building up and train 500 people [to build them], but it just takes time.”

American business calls this “Lean Manufacturing“.

A final illustration of how a simple part that gets caught in the supply chain becomes a big problem: The Eurasian Times reports that German ammunition manufacturers have warned about delays in receiving cotton linters. They are a necessary component for propelling charges from small guns and artillery. All European ammunition producers depend on China for cotton linters, even though it is a commodity produced and traded globally. The time to get them to Europe has tripled to nine months.

Much like we learned during the height of the pandemic, our supply chain is only as strong as its weakest link. Lean Manufacturing and “Just-in-Time” supply chains drove the prices of imported goods through the roof, but increased demand meant that we still had to wait months to get what we ordered. Have we learned anything?

Like during the pandemic, the Russo-Ukrainian War is sending a clear warning to everyone throughout the West: We need to ramp up production, capacity, and have a more reliable – if somewhat less efficient, supply chain to support our military. This is a hard lesson, because unlike jets, missiles and ships, ammunition and expendables are hidden away in bunkers. And if your governments and diplomats do their job, they will never be used.

However, if/when you need them, like right now, the need is existential. Time to wake up America! We can’t depend on capitalism only to solve our supply chain problems. To help you wake up, take a moment to watch the Foo Fighters, who closed 2017’s Christmas episode of Saturday Night Live with an extended performance of “Everlong” that morphs into a pair of seasonal classics:

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Will New House Prices Go Down?

The Daily Escape:

Mt. Hood viewed from Timberline Lodge – December 2022 photo by Mitch Schreiber Photography

We have all watched house prices go through the roof since the start of the pandemic. Of Wrongo and Ms. Right’s six kids, two do not currently own a home, and despite having good jobs, and wanting to buy, they’re priced out of their local markets. Houses near Wrongo’s daughter on Cape Cod, MA have nearly doubled in price since the start of the pandemic. The same is true for Wrongo’s son in Bergen County, NJ.

But house sales in US have been slowing down in the past few months as interest rates climb. Wolf Richter at Wolf Street says there are now too many new houses for sale:

“Inventory of new houses for sale…has ballooned to 470,000 houses, up by 21% from the already high levels a year ago, and the highest since March 2008….Which destroys the theory that home prices are high because the industry isn’t building enough houses…”

Wow, nearly a half-million unsold new houses! Much of this inventory of unsold new houses were built in locations that are far from the big suburbs and the cities. After the pandemic started, US businesses redefined the office to include working from home. That further moved to “live anywhere” remote work for some firms.

Now, firms are bringing people back to their physical offices. That makes selling houses at great distances from the office a tough proposition for new home builders. It means buying a lower price rural home based on a big remote salary is no longer in the cards for many workers.

According to Bloomberg, Lennar a major home builder, has been approaching the big corporate rental landlords with an inventory listing about 5,000 houses that it wants to offload:

“Lennar is circulating lists of properties to potential acquirers, according to people familiar with the matter….Many of the properties are located in the Southwest and Southeast…with the builder giving landlords the chance to acquire entire subdivisions in some cases.”

It’s an industry-wide problem. Home builders have pitched at least 40,000 new houses to rental operators in recent months. Bloomberg says that many of these houses had originally been sold to individual buyers who later canceled their purchase contract.

According to a survey by John Burns Real Estate Consulting, the purchase contract cancellation rate spiked to 26% in October, up from a rate of 8% a year ago, and up from 11% in October 2019. The cancellation rates were highest in the Southwest at 45%, up from 9% a year ago. In Texas, the cancellation rate spiked to 39%, up from 12% a year ago. That’s understandable since mortgage rates have been rising so quickly.

This tells us that a part of the “housing shortage” is both local and price-driven. We know that house prices are driven by building costs, which have spiked in the past two years. Prices are also driven by the quality of the schools in the area, or whether the location is near a tourist destination. Retirees can move anywhere, but they generally want to be close to doctors and medical centers and will pay a premium for location rather than pay a lower price to live in the middle of nowhere.

Entire subdivisions sold as a rental community is better from the viewpoint of an individual home buyer instead of a percentage of that development’s homes being sold into a rental pool. No one should buy into a development that is partially sold and partially rented. The big landlords will rarely improve them beyond the least amount possible. So the overall value of all the homes in that community will be diminished by the presence of a rental pool.

We saw that in California in the 2007-2009 real estate bubble, where a few houses in otherwise nice neighborhoods would have overgrown lawns and trash lying in the yard, a clear sign of vacancy. That didn’t help the property values of the individual homeowner neighbors.

How far will housing prices fall? Nobody knows. Here is a chart showing average housing prices since 2019:

Comparing 2019 to 2022, average house prices have risen by 39%. Your area’s average may be even higher, particularly if you live in or near a large city.

It’s clear that the US housing market needs a price correction. Wrongo would like to say that people shouldn’t be offering anything higher on the house they want than it would have sold for in 2019. But, we may not get back to that price level anytime soon.

A price correction alone won’t solve America’s housing crisis, but a 20% correction sure would be a nice start.

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Saturday Soother, London Edition – October 29, 2022

The Daily Escape:

The Old Floral Hall, Covent Garden, Royal Opera House, London UK – October 2022 iPhone photo by Wrongo

We’re nearing the end of our week in London. Yesterday, we visited the Royal Opera House (ROH) in Covent Garden. We got to watch ballet rehearsals by the Royal Ballet Company which shares the ROH, and briefly listened in on a rehearsal by Lisette Oropesa who plays the title role in “Alcina” by Handel. Alcina turns her male lovers into plants, an idea that inspired much mirth from Ms. Right.

Wrongo saw Nureyev perform at the ROH in 1976, when he was working for the big American bank. That was ages before the remodel of the ROH which added a huge addition in 1997-1999. In the 1970s, the Old Floral Hall in the photo above was at street level. Now it has been refurbished, halved in size, and raised to the second floor inside the ROH addition. It is used as an event space and cocktail bar.

We heard over here about the good US economic news. And it wasn’t just about GDP growth. There was also good news on inflation. The Personal Consumption Expenditure (PCE) price index, which the Fed watches closely, increased by 4.2%, down significantly from 7.3% last quarter. And the CPI for the last three months rose by 0.5%, equating to an annual rate of 2%. If it were to keep up for the next nine months, that’s at the Fed’s inflation target. Pity that the media aren’t talking about this, but mostly about how the economy is still slowing.

One thing that caught Wrongo’s eye from abroad was Harvard’s Kennedy School of Government’s release of its 44th youth poll: (emphasis by Wrongo)

“A national poll released today by the Institute of Politics at Harvard Kennedy School indicates that 40% of 18-to-29-year-olds state that they will “definitely” vote in the November 8 midterm elections, on track to match or potentially exceed the record-breaking 2018 youth turnout in a midterm election. Young voters prefer Democratic control of Congress 57% to 31% (up five points for Democrats since spring), but 12% remain undecided.”

John Della Volpe, Kennedy School director, believes we will see a Gen Z wave in November:

“Youth today vote at levels that far exceed millennials, Gen X, and baby boomers when they were under 30.”

In the 2020 presidential election, voters 18-29 voted in even greater numbers than in 2018: closer to 50%. Yet, if turnout by younger voters is in the 40% range, that’s not something to celebrate. It means that younger voters are leaving a lot of political power on the table.

According to the US Census, people over 65 outvoted them by over 15 points in 2018. Political power is right there waiting for people to grab it. That only will happen if more people turn to vote.

Wrongo got an email from his Democratic Congressperson Jahana Hayes, saying that she was trailing by one point in the highly respected Emerson College poll which says:

“The economy is the most important issue for 46% of Connecticut 5th District voters, followed by abortion access (16%), and threats to democracy (14%).”

Hayes is a first-term Representative who was comfortably elected in 2020. While the results are within the ± 4.3% margin of error in the poll, this isn’t a seat the Dems thought was in play. This is more proof that the Dems are flailing with their messaging on inflation and the economy, despite the fact that inflation is falling and the economy is still growing.

But we also have to remember that if the GOP takes the House, they’ll have absolutely no incentive to even try to help make economic conditions any better.

In fact, they are actually incented to try to make it worse. Why? Because the Democrats will still control the White House and may also control the Senate for the next couple of years. It’s a safe bet that Republicans will do whatever they can to increase the chaos on the economic front, so that they can continue to blame Democrats when Trump runs again in 2024.

But we really have no idea which Party will control the House and Senate, and we may not know for sure until a week or two after November 8.

With Wrongo and Ms. Right in London, you’re on your own for how to relax on this Saturday. To help with that, watch and listen to Sinfonity TV Guitar’s incredible performance of Bach’s “Toccata & Fugue”, recorded live in Segovia, Spain. To watch 15 rock guitar musicians playing it in unison is astounding. Take your collective hats off to the musicians who play it:

Who says rock and classical music don’t mix?

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More Midterm Madness

The Daily Escape:

Sunset, Thumpertown Beach, Cape Cod, MA – October 2022 iPhone photo by Wrongo

We’re back from a truly delightful time with family and friends on Cape Cod. The next few days will be hectic because we’re leaving again on Sunday, this time for a week in London.

About the November midterms. It seems clear that the polls are tightening in many races. Some of that is natural and to be expected as the political horse races head down the stretch. Some pundits like Amy Walter, think that this demonstrates that the Dems have reached the ceiling for their support in 2022:

“So, basically, what…I’m hearing from…sources in the campaigns is that Democrats may have maxed out that enthusiasm gap they got over the issue of abortion and that growing beyond that is going to be the challenge.”

Robert Hubbell agrees that recent polls have swung towards the GOP, but questions whether these polls reflect the facts on the ground:

“Never before in American history have we faced the elimination of an existing Constitutional right for 51% of the population. Never before have we faced a party whose platform seeks to end the very democracy they seek to rule…”

More from Hubbell:

“Do polling models account for those unprecedented conditions? I don’t know. Do polling models account for the fact that increases in registration among women are driven by outrage over the ruling Dobbs? I don’t know….Polls are not destiny.”

Polling isn’t an exact science. Much depends on how you frame the questions, and who gets asked the questions. One distinction is whether the poll asks the questions of “registered voters” or “likely voters.” Not all registered voters are likely to vote, but all likely voters are registered voters. In some polls Republicans are doing better among likely voters than they are among registered voters, meaning that in those polls, Republicans may be assumed to be more “enthusiastic” than Dems about getting to the polls.

Pundits think that voters’ view of the economy will decide how they vote. Since the 1990s, both Parties have been locked in a battle over which Party voters trust to handle the economy. Democrats have tended to win elections when they had a clear lead on this question, such as during the 2008 financial crisis or in the 1992 election. Otherwise, they’ve either lost, or the elections were very close.

From The Economist: (emphasis by Wrongo)

“According to a new Gallup poll released on October 3rd, 51% of adults now trust Republicans more with the economy, compared with 41% for the Democrats. Though Republicans held the advantage on Gallup’s question for much of the past decade, the gap between the parties’ ratings is now the widest since 1991.”

Sounds terrible for Dems, no? More from The Economist:

“…such a gap should doom the Democrats in this November’s midterm elections. If the average voter trusts Republicans to make them more prosperous, surely they would not deliver Congress back to the hands of the Democrats? After all, what voter casts a ballot against their own personal prosperity?”

But according to a survey carried out for The Economist by YouGov, there are plenty of voters who prioritize other issues. Each week, YouGov asks 1,500 Americans to pick their most important issue from a list of problems. Over a third currently say that either the state of the economy or inflation are their top concerns, followed by roughly 10% each who say it’s health care, climate change or abortion.

Fewer mention civil rights (7%), national security (6%), or crime, immigration, and government spending (5% each). Less than five out of every 100 Americans say it’s either education, or gun control.

The poll shows that while just 4% of adults said that abortion was their primary issue last October, nearly 9% say so today. Among likely voters having abortion as their primary issue, 75% of them say they will vote for Democrats versus just 21% of Republicans.

That’s a much wider gap than the advantage Republicans enjoy on the economy. The Economist notes that if just 20% of likely voters prioritized the economy above all other issues (rather than the 31% who currently say they do), Democrats would be ahead by 7 percentage points and likely keep the majority in both Houses.

Therefore, the outcome of November’s midterms may depend on whether the Democrats can make gains among those voters who mostly care about the economy. We see that the media and many politicians conflate inflation or the Dow Jones stock average with the economy, but maybe they should be covering that Industrial Production in the US is at an all-time high.

Manufacturing is higher than at any previous level with the exception of the end of 2006 through early 2008. And those elusive manufacturing jobs that went to Asia? We’ve added 1.5 million manufacturing jobs since April 2020, reaching a level not seen since December 2008.

But go ahead and vote Republican because of gas prices:

Voting has already begun in a few states, but we really don’t know what’s going to happen in the midterms. It will boil down to turnout. Our destiny is in the hands of those who bother to show up and many people don’t believe that their vote even matters.

Stop worrying. Instead, do something to help get out the vote. If you don’t have the money, donate your time. If you don’t have the time, donate your money.

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Sunday Cartoon Blogging – September 25, 2022

Liz Truss’s big bet since taking over as UK prime minister is to lower taxes just like St. Ronnie and Trump did in the US. Said Truss:

“Lower taxes lead to economic growth, there is no doubt in my mind about that,”

Trickle down will work this time, we promise, say UK Conservatives.

The tax reductions will require the UK government to borrow bigly to balance their budget. They hope that there will be so much growth that the UK will make it all back in future tax payments. Just like in the US, the lie is that these tax cuts will pay for themselves! Something that has never happened.

The UK Treasury said that the top personal rate will be cut from 45% to 40%. That will be more beneficial for the wealthy than the majority of British society. Shortly after the cuts were announced on Friday, the pound sank almost 2.6% to its lowest level against the US dollar since 1985. Wrongo hates to quote Larry Summers, but he said this:

“The UK is behaving a bit like an emerging market turning itself into a submerging market…it is pursuing the worst macroeconomic policies of any major country in a long time.”

Bloomberg’s Mark Gongloff tweeted:

“Liz Truss just announced the UK’s biggest giveaway to the rich since 1972, which resulted in an IMF bailout. Now the pound is crashing in the middle of the worst inflation since the 70s. Bold strategy….Let’s see if it pays off.”

It’s hard to believe this will go well with the UK already in a recession. On to cartoons.

Russian men are facing tough choices:

Ukrainian ballot:

Reserves get their orders:

Trump’s building something new in NY:

He says witch hunt a LOT:

The coming election may surprise some people:

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Monday Wake Up Call – September 12, 2022

The Daily Escape:

Harvest Moon, Cape Cod National Seashore, MA – September photo by Tom Baratz

With all of the media’s coverage of the comings and goings of the British monarchy, Wrongo’s certain that you missed the reviews of a new book, “Slouching Towards Utopia” by Brad DeLong, an economist from UC Berkeley. Dylan Matthews in Vox quotes DeLong from the book:

“The 140 years from 1870 to 2010 of the long twentieth century were, I strongly believe, the most consequential years of all humanity’s centuries.”

Matthews thinks it’s a bold claim. After all, homo sapiens has been around for at least 300,000 years; DeLong’s “long twentieth century” represents 0.05% of that history.

But DeLong says an incredible thing happened during that sliver of time that had eluded our species for the other 99.95% of our history: Before 1870, technological progress was glacial, but after 1870 it accelerated dramatically. More from Vox:

“DeLong reports that in 1870, an average unskilled male worker living in London could afford 5,000 calories for himself and his family on his daily wages. That was more than the 3,000 calories he could’ve afforded in 1600, a 66% increase….But by 2010, the same worker could afford 2.4 million calories a day, a nearly five hundred fold increase.”

DeLong is speaking of the nations of the rich north, not about all nations. He’s saying that food surplus was the key driver of progress. What’s implied is that the greatest difference between the wealthy and everyone else was that the poor were living on the verge of starvation. Those basic economic facts shifted once having enough to eat ceased being society’s most critical status distinction.

Another interesting statistic from the book:

“…the average number of years of a woman’s life spent either pregnant or breastfeeding…has gone down dramatically, from 20 years of a typical woman’s life in 1870 to four years today.”

Most historians present modern history as a long 19th century (from the French revolution in 1789) to the crisis of 1914. Which is then followed by a shorter 20th century ending with the fall of communism. DeLong, by contrast, argues that the period from 1870 to 2010 is best seen as a coherent whole: the first era, he argues, in which historical developments were overwhelmingly driven by economics.

From the Economist:

“…despite the Industrial Revolution…for millennia, technological improvements never yielded enough new production to outrun population growth. Incomes had stuck close to subsistence levels. Yet from around 1870, growth found a new gear, and incomes in leading economies rose to unprecedented levels, then kept climbing.”

DeLong says that economic policy in this period was a duel between the ideas of Friedrich von Hayek, who extolled the power of the free market, and Karl Polanyi, who warned that the market should serve man, not man serving the market.

Before WWI, markets generated rapid growth along with soaring inequality. People pushed back, demanding greater political rights, which they used to pursue regulation of the economy and improved social insurance.

After WWII, a mix of a market economy and a generous safety-net made for a happy marriage of Hayek and Polanyi, improved by Keynes, who said that governments should act to prevent economic recessions. This led to a three-decade post-war period of growth unmatched before or since. DeLong calls them the Thirty Glorious Years; from 1945 to 1975, as the US and Europe recovered from World War II.

But when growth sagged and inflation rose in the 1970s, voters supported politicians promising market-friendly, or “neoliberal”, economic growth reforms, like lower taxes and reduced regulation. But those reforms didn’t keep economic growth high. And they also led to even worse inequality. Still, the US and other rich countries pressed on with them, right up to the 2008 global financial crisis, which marks the end of DeLong’s 20th century.

According to a paper by Carter C. Price and Kathryn Edwards of the RAND Corporation, had the more equitable income distribution that America experienced in those thirty glorious years stayed constant, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in just the year 2018. That’s an amount equal to nearly 12% of GDP.

Price and Edwards say that the cumulative inequality cost for our 40-year experiment in government-supported income inequality added up to $47 trillion from 1975 through 2018. And probably equaled $50 trillion by 2020.

That’s $50 trillion that would have made the vast majority of Americans far more healthy, resilient, and financially secure.

So, the big unanswered question is: Can we again return to a period where we see both economic growth and equitable growth? It’s highly doubtful. As DeLong says in Time:

“Our current situation: in the rich countries there is enough by any reasonable standard, and yet we are all unhappy, all earnestly seeking to discover who the enemies are who have somehow stolen our rich birthright and fed us unappetizing lentil stew instead.”

The problem here is that our entire culture, economy and even our civilization is predicated around growth and people haven’t known anything else. Hope you’ve enjoyed the ride.

Time to wake up America! We need to reimagine capitalism, our taxation policies and our welfare scheme if we are to survive. Expect a rough adjustment.  To help you wake up, listen, and watch Bruce Springsteen perform “Darlington County” live in London in 2013:

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Saturday Soother – August 20, 2022

The Daily Escape:

Stormy view from House Mountain, Sedona, AZ – August 2022 photo by Ed Mitchell

Tens of thousands of teacher openings are unfilled as students head back to American classrooms. That’s prompting states and school districts to try everything they can to address the teacher shortage.

Except increase their pay. The Economic Policy Institute (EPI) has tracked teacher compensation for 18 years. Here’s the headline:

“…teachers are paid less (in weekly wages and total compensation) than their nonteacher college-educated counterparts, and the situation has worsened considerably over time.”

EPI tracks what they call the relative teacher wage penalty, the relative wages and total compensation of teachers compared to other college graduates. Here are the EPI’s findings:

  • Inflation-adjusted average weekly wages of teachers have been relatively flat since 1996. The average weekly wages of public school teachers (adjusted for inflation) increased just $29 from 1996 to 2021, while inflation-adjusted weekly wages of other college graduates rose from $1,564 to $2,009 —a $445 increase.
  • The relative teacher wage penalty reached a record high in 2021. It was 23.5% in 2021, up from 6.1% in 1996. The penalty was worse for men than for women. The penalty for men rose from 18.6% to 35.2%.
  • The great portfolio of teachers’ benefits used to be a selling point, but it hasn’t been enough to offset the growing wage penalty. The teacher total compensation penalty was 14.2% in 2021 (a 23.5% wage penalty offset by a 9.3% benefits advantage).
  • The relative teacher wage penalty exceeds 20% in 28 states. Teacher weekly wage penalties estimated for each state range from 3.4% in Rhode Island to 35.9% in Colorado. In 28 states, teachers are paid less than 80 cents on the dollar earned by similar college-educated workers.

The EPI has a chart showing the relative erosion of teacher wages vs. other college graduates since 1980:

The EPI focuses on “weekly wages” to avoid the comparisons of length of the work year (i.e., the “summers off” issue for teachers).

Add to this the general decline in working conditions for teachers, and many who are eligible for retirement are leaving. Republicans in particular are politicizing education. Some are pushing the idea of “parental rights.” That is happening in Florida, Texas and in other states. It’s clear that in some school districts parents want the right to censor what’s being taught. Some Conservatives are pushing for a camera in every classroom across America. Tucker Carlson called for cameras in classrooms to “oversee the people teaching your children, forming their minds.”

This comes under the guise of “transparency in the classroom”, parents keeping an eye on teachers, so they won’t teach the dreaded Critical Race Theory (or groom kids to become trans, or gay). Teachers naturally bristle at the idea of video auditing.

Forcing teacher compliance with imposed politicized curricula won’t make these jobs any more desirable.

Some states are relaxing licensing requirements to make it easier for people to fill some of those unfilled jobs. Florida, which has about 8,000 open teaching positions, is allowing military veterans without a bachelor’s degree and no prior teaching experience to apply for a temporary five-year teaching certificate while they finish their bachelor’s degrees.

The biggest issues to solve are better public school funding, which can help end the teacher wage penalty. That requires towns to raise taxes. Second, the politicization of education is changing the amount of parental control in the day-to-day operations in some school districts. That’s making teaching an even lower-status job than it is now.

According to the BLS, there are currently 300,000 fewer teachers nationwide compared to before the pandemic. Part of this is job satisfaction. A survey from the American Federation of Teachers found that 74% of teachers were dissatisfied with their job, up from 41% two years ago.

If teachers and staff are underpaid, under-resourced and are now being second-guessed in the classroom, they’re not going to stay. So replacing them will become an even bigger problem.

Enough of this week’s problems, it’s time for our Saturday Soother! Let’s put Trump’s secrets and Liz Cheney’s political prospects on pause. We’re facing moderate drought conditions here in CT, so lawn mowing has ceased, and our grass is brown and crunchy.

But, it’s time to empty our minds, so that we can begin filling them up again on Monday. Start by grabbing a cold glass of lemonade and a seat in the shade.

Now, watch and listen to Antonin Dvorak’s “4 miniatures”, for 2 Violins and Viola, played here by the Musicians of Lenox Hill at Temple Israel of the City of New York in  April 2019:

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Partisanship is Dragging Down Consumer Sentiment

The Daily Escape:

Sunrise, Smugglers Beach, Yarmouth, MA – July 2022 photo by Sue Frageau

We all hear the negative news, and fewer of us hear what’s positive. Bloomberg’s Matt Winkler says that the measures that track confidence in the economy are being skewed downward by politically disgruntled Americans, mostly people on the Right. Here’s a chart:

There’s plenty of evidence that the Democrats are terrible at political messaging. But, even though inflation is at 40-year highs, we need to ask why consumer sentiment seems so low when the economy is doing pretty well.

Winkler’s point is this level of negativity makes little sense economically but as the chart above shows, it’s consistent with partisanship. And he makes a compelling case that the current sentiment levels are disconnected from the overall state of the economy relative to historic levels. More from Winkler:

“Never mind that the deaths related to Covid-19 plunged 78% from the first to the second quarters, that 10 million new jobs have been created, that unemployment at 3.5% represents a 53-year-low, that corporate earnings rose to a record and that the confidence of chief executive officers remains above its long-term average. Not to mention that total household net worth soared by $18.1 trillion in 2021, the most under any president…”

Here’s a different chart from Barry Ritholtz showing the University of Michigan Sentiment Index going back to 1978, annotated to show previous economic turndowns:

The chart shows that the current sentiment readings are worse than:

  1. 1980-82 Double Dip Recession
  2. 1987 Crash
  3. 1990 Recession
  4. 9/11 Terrorist Attacks
  5. 2000-2003 Dotcom implosion
  6. 2007-09 Great Financial Crisis
  7. 2020 Pandemic Panic

Does it make any sense that today’s consumer sentiment would be worse than it was for all of those previous economic crises? It does not.

It seems that Republicans are indifferent to the positive developments. The University of Michigan’s national Consumer Sentiment Index has plummeted 50% under Biden to an all-time low, primarily due to Republicans’ disapproval of an economy led by a Democratic President.

Bloomberg found that Democrats also aren’t as approving when their Party isn’t occupying the White House. But in contrast to Republicans, Democrats’ confidence correlates closely with rising and falling gross domestic product and unemployment trends.

To be sure, the highest inflation level in 40 years, as measured by the Consumer Price Index at 9.1%, for June (although July measured a lower 8.5%) is punitive to the least affluent voters, the traditional base of Democrats.

Republican are amplified by FOX News in their views that the economy is in terrible shape. When the Commerce Department said on July 28 that the economy contracted for a second consecutive quarter, the Fox Business channel declared, “We are officially in recession.”  But, as Wrongo and many others have said, there is no “official” recession until the nonpartisan economists of the National Bureau of Economic Research declare it.

It’s a perplexing time for economists. Overall activity as measured by GDP has contracted, but it doesn’t feel like a recession. The economy has added 2.74 million jobs this year through June. This earnings season has shown that members of the S&P 500 Index are on track to post record profits for the second quarter.

But none of this is apparent in the Michigan Sentiment Index, perhaps because Republicans running for office across the country in 2022 are saying the economy is terrible. They are the same people who are still denying the results of the 2020 election.

Paul Krugman asks why Biden isn’t getting any credit for the 10 million new jobs created in his first two years in office:

“Some polling suggests that the public may not be aware that we’ve been creating jobs at all, let alone at a record pace. And we’re in a partisan environment where politicians…can make obviously false assertions and have their supporters believe them. The other day Trump told a crowd that gas in California costs $8.25 a gallon, and nobody laughed. (It was actually $5.43 at the time.)”

Meanwhile, Biden is doing exactly what he promised when he got elected. And he’s succeeding against the odds with only occasional bipartisan support. His success shows that what’s hurting the consumer sentiment polling is partisanship and disinformation.

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