Relevant and even prescient commentary on news, politics and the economy.

More on Markets and Neoliberalism from Crooked Timber

Actual markets in the American economy are extremely rare and unusual beasts. An economics of markets ought to be regarded as generally useful as a biology of cephalopods, amid the living world of bones and shells. But, somehow the idealized, metaphoric market is substituted as an analytic mask, laid across a vast variety of economic relations and relationships, obscuring every important feature of what actually is. And, then we wonder why the “thinking” and policy debates that result are stupid and corrupt.
—  Bruce Wilder

Emphasis added.   This is in the context of a critique of neoloberalism, here described by Henry Farrell:

In fact, it is not free markets with vigorous competition among producers, but instead, a mixture of big firm oligopoly and cosy and frequently corrupt relationships between state officials, who have been told to subcontract out parts of government, and the businesses which supply these new services, in what is at best a murky approximation to a real marketplace. You can read this as a statement that classical liberalism has some good points as well as some bad ones. You can equally well read it as saying (and this is the more fundamental point), that regardless of whether or not classical realism had some good arguments, these don’t have anything much to do with actually-existing-neoliberalism which is a crony capitalist fantasy.

This lays bare the greed, dishonesty, corruption and manipulation inherent to neoliberalism, and simultaneously exposes the concept of “the market” as an absurd quirk of the typical economist’s imagination.

Each of these meaty comments is highly worthy of recognition.  The cephalopod reference made the first one utterly irresistible, and prompted this post.

The bad news is that there doesn’t seem to be any way out.


Here, John Quiggin provides a good functional definition of neolibealism – the first I’ve ever seen – and a very thoughtful critique of neoliberalism as a political cum economic ideology.

The core of the neoliberal program is
(i) to remove the state altogether from ‘non-core’ functions such as the provision of infrastructure services
(ii) to minimise the state role in core functions (health, education, income security) through contracting out, voucher schemes and so on
(iii) to reject redistribution of income except insofar as it is implied by the provision of a basic ‘safety net’.

Quiggin judges neoliberaism to be a failure, for different reasons in different places.  I’m going to quibble with his definition of failure, type iii, though: a failure to deliver the promised outcomes.  With a focus in the inherent dishonesty and corruption inherent to neoliberalism, I can only view it as highly successful in the U.S.  This is because there is a real hidden agenda lurking behind the false public agenda.
 
Wilder describes how it works in a follow-up comment: (Be sure to read the whole thing.)

Neoliberalism, it seems to me, uses the myth of the market, to rationalize rule-making, which serves the rentiers (is dynamically inefficient) and which promotes authoritarian, and therefore unfair, resolution of conflict.

Quiggin describes the type iii failure in the U.S:  “The basic problem is that, given high levels of inequality, very strong economic performance is required to match the levels of economic security and social services delivered under social democracy even with mediocre growth outcomes.”  Of course, no such strong economic performance is forthcoming.

However, the real agenda is not general economic security.  Quite to the contrary, it is to maximize and maintain a high level of inequality, such that the small, elite minority has absolute control over the impoverished majority, precisely because their economic security is severely limited.  I cite as evidence the extreme form of 21st Century Republican party neoliberalism, which even attacks the existence of a basic safety net.  Note also their ongoing attacks against labor unions, health care reform, and education at all levels.

The job is not yet complete, but I have to view the record of neoliberalism in the U.S., to date, as a smashing success.

I posted this on my blog in slightly different form as a Quote of the Day entry. But it makes such a fitting companion piece to Dan’s from earlier today that I decided to put it up here, as well.

 H/T to Unlearningecon

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Where Has All The Money Gone, Pt IV – Dividends

We’ve already seen in previous installments of this series that since about 1980, I: corporate profits have soared, II: the slice of profits going to finance has soared even more, and III:  wages have stagnated.  Here we see what corporations have done with all that money.   There is a limited selection set: pay taxes, distribute as dividends, pay down debt, invest, make acquisitions, speculate, and hold as cash.

Here is a look at taxes through 2008 and dividends through 2010, as percentages of profits; data from BEA table 7.16, lines 19, 20 and 38. For my purposes, profits are divided among taxes, dividends, and all the other things mentioned above, which I’ll call the Residual.


Dividends/ Profits are in green; Taxes/Profits in red.  I’ve added 13 year moving averages to clarify the trends over time.  The Dividend percentage bottomed in 1978 at 20.6%.  I’ve marked that year on both curves with a yellow dot.  After that, dividend payments took off sharply and have been mostly in the 40 to 50 % range since 1989.  The tax rate on dividends was reduced to 15% in 2003, also marked with a yellow dot, but I don’t think that change has had much effect on dividend payout.  The gyrations in the payout percentage since 2003 are largely due to the denominator affect, as profitability increased after the 2001-2 recession, and plummeted during the recent Great Recession.  Notably, 2010 profits are the highest ever. 
 
The tax payout drop lagged the dividend increase by several years, and didn’t start dropping until 1987.   In 1986, the tax payout rate was 45.2%.  After a sharp drop to 27.7% in 1992, the payout rate increased throughout the Clinton administration, topping at 34.5% in 2000.  Then, there was another sharp drop.  It has since leveled off, averaging 25% since 2004.

In 1978, the 13 year averages were 24.2% for dividends and 42.4% for taxes.  Those averages are now 28.3, and dropping; and 45.7 and rising, respectively  45.7 and rising for dividends; and 28.3% and dropping for taxes – essentially a reversal of positions.  The net result is a massive funneling of money from government to dividend recipients who now are paying only 15% tax on their dividend income.

This is not only “Starve the Beast” in action, it is a massive redistribution of wealth into the hands of those who already have the most.   Say what you will about the relative efficiencies of the private and public sectors in using resources, the public sector places money into the hands of people who will spend it and keep the economy moving.  The private sector largely funnels it into rent seeking.

For the sake of completeness, here is a look at the Residual – as defined above – with a 13 year moving average and a best fit straight trend line.

This provides a partial explanation for Jon Hammond’s observation that net corporate investment has been down over the duration.  There is less residual to invest.

Bottom line:  Corporate profits have been skewed to dividend payments, to the detriment of worker salaries, government tax revenues, and corporate investment.

Cross posted at Retirement Blues.

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Income and Consumption

This is another look at the idea I put forth here, that – contra the standard economic idea that consumption depends on wealth – I believe that consumption depends on income.  It’s worth stressing that wealth and income are not independent variables.  Wealth is the accumulation of unspent income plus returns generated on that wealth over time.  Is it proper to say that wealth is a stock, and income is a flow? 

I believe the evidence very strongly indicates that consumption – also a flow – is tied tightly and directly to income.  This does not mean that wealth cannot play a part in consumption decisions.  People make all kinds of decisions about all kinds of things, for all kinds of reasons.  But consumption decisions are constrained, and there is no reason why they can’t be constrained in more than one way. 

I think the idea that consumption depends primarily on wealth is intuitively weak because consumption is aggregated over the population, while wealth is concentrated in a small segment of that population.  A person with little or no wealth will spend the next dollar meeting some unsatisfied need, while the person with lots of wealth has the option of devoting it to rent-seeking or accumulation in an off-shore shelter.  According to data now more than a decade old, the richest 1% of households owned 38% of all the wealth; the top 5% owned over half, and the top 20% owned over 80% of the wealth.  The trend towards rising inequality started in the mid 70’s.


A couple of proxies for wealth are home and common stock ownership.  Excluding home-ownership, the wealth concentration is even more extreme, with the top 1% owning 50% of the non-home wealth.  It’s difficult to determine the actual amount of stock ownership in private hands.  A number arrived at by elimination leaves 36% among households, non-profits, endowments and hedge funds.   Therefore, realistically, the bottom 99% of individuals share about 18% of all stocks with those other institutions.  At the bottom end, the lowest 20% have either no wealth, or negative net worth.

People at the low end live close to subsistence.  People in the middle live pay check to pay check.  For the vast majority of the population, the next marginal dollar has a high probability of being used as a consumption expense. 

That is my narrative to support the idea that consumption must necessarily be strongly dependent on income.  Now, let’s look at some data, through 2009, from the U.S. Census Bureau, Table 678.  The first graph shows Disposible Income (green) and personal Consumption Expenditures (red) back to 1929.

A careful look suggests a narrative about this relationship.  First, consider the depression years.  From 1932 to ’34, consumption averaged 99% of disposable income.  People had needs, and used their limited incomes to satisfy them, as best they could.   Then, during WW II, with rationing and other constraints, saving was forced, and consumption was artificially low.  Consumption reached an all-time low of 73.3% of Disposable Income in 1944.  Since shortly after WW II, changes in Disposable Income and Consumption have been in virtual lock-step.   I’ve put lines in a contrasting color connecting selected points in the Disposable Income curve, and dropped parallel lines for the same years onto the Consumption curve.  Since 1951, very wiggle in Income corresponds to a wiggle in Consumption.

Here is a scattergram of the two subject variables, with a best-fit straight line provided by Excel.

As has been pointed out to me, correlation is not causation.  But – when one can construct a rational narrative that explains the data, the two series display absolutely congruous motion over several decades, and R^2 is over 0.99, I’m willing to go out on a limb and say the burden of proof is on the denialists.

Here is a look at Consumption as a percentage of Disposable Income, since 1951.

I’ve expanded the Y-axis.  In a view of the entire 0 to 100% scale, the post-1950 line barely wiggles.  Over a span of 6 decades, Personal Consumption has averaged 90.1% of Disposable Income, with a standard deviation of 2.12%. 

The data points, average, and an envelope one Std Dev above and below the average are all displayed on the graph.  Despite having two clearly defined and opposite tending trends, this is still a well behaved data set, with 39 of 58 (67%) of the points within the envelope.

The two minima are in 1982 and 1984, and the bottom trend lines converge in 1982, so that is a reasonable time to define as the break point.  This also suggests a narrative.  During the post WW II golden age, typical wage earners moved incrementally above the subsistence level.  This gave them the opportunity to save a little bit.   Since 1982,  as wages stagnated, it became necessary to devote a higher percentage to Consumption.  Sure enough, savings grew through the mid 70’s, and have dropped dramatically since 1982 (or a bit earlier,) as this FRED graph demonstrates.

I won’t say that Consumption Spending is solely dependent on Income.  But I will say that it is strongly, and even predominantly, dependent on income.   Wealth might enter into the decision for those who actually have some, but they are in the minority and have few needs that can be satisfied by the next dollar of consumption.

My conclusion is that the best solution to the aggregate demand shortfall problem is to put money into the hands of the people who will actually spend it, and that the best way to do that is to give them jobs.  As stop-gaps, various relief and welfare programs also have their place. This is the rational for fiscal stimulus.  Federal spending programs provide real jobs for real people, and they will spend their earnings.  Arguing about whether this is hole-filling or pump-priming strikes me as being just about as important as arguing about how many angels can dance on a pin head.

Cross posted at Retirement Blues

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Where Has All The Money Gone – Pt. III, Not to You and Me

Part I showed the money going to corporate profits, not to the salaries of working people.  Part II showed that the finance sector has captured an increasing slice of the profit pie.  Here is a different look at where the money hasn’t gone.

The first graph shows Real GDP/capita and Real Disposable Income/Cap since 1950 on a log scale.  (Data through 2009, from The Census Bureau. Table 678 at the link.)

I’ve left the 50’s out of the argument (but not the graph,) as a courtesy to Ike, since his relative performance suffers due to the post war baby boom.  The population grew at an above normal rate for over a decade, and that skews the GDP/Cap data.


If you’ve been paying any attention to time series economic data, you know there are break points in almost any econ measure, somewhere in the vicinity of 1980.  I’ve added trend lines, breaking the data sets arbitrarily at 1980.  These trend lines here tell the same story – it’s deja vu all over again.  Pre-1980 trend lines start with 1960 data.  I stopped the post ’80 trend line data sets at 2007, to avoid the influence of The Great Recession, which would have have further deceased their slopes.

What I want to emphasize here is the difference between the two lines.  Though both have a knee, the Disposable Income break is much sharper.   Here is a graph of the difference between the two, linear scale.  And, BTW, this time I left the ’08 and ’09 data in the trend line determination. 

Well – since 1980(-ish) not only has GDP growth slowed, the amount captured in disposable income has decreased, quite dramatically.

That’s a whole lot of wealth that is NOT ending up in the hands of ordinary people.   Which is why it doesn’t get spent.  But that is another story.

An earlier version of this post was published at Retirement Blues, back in June.

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Wealth vs Income

Usually my articles present facts and data and try to drive down to a conclusion. This time, I’m going to drive down to a couple of questions.

Recently, Noah Smith had a post on the subject of economic models titled Filling a hole or priming the pump?  It did quite a bit to restore my lack of faith in the pseudoscience of Economics, but that is more or less beside the point.  Roger Farmer, cited in the post, left a long comment that Noah hoisted up the main page.  Farmer concludes:

My reading of the evidence is that consumption depends primarily on wealth rather than income. That was the lesson of work by Ando and Modigliani, Modigliani, and Friedman in the 1950s. It is for that reason that I support interventions in the asset markets that try to jump-start the economy and reduce unemployment by boosting private wealth. That, in my view, is what quantitative easing has done.

Ok – I’m taking on decades of economic research here, but my first question relates to: “My reading of the evidence is that consumption depends primarily on wealth rather than income.”

First, let’s remember that wealth distribution is on the order of the top 1% owning 40% of the wealth, and the bottom 80% owning 7% of the wealth. And that 7% is not evenly distributed.  There are significant fractions of the population who have a) no wealth at all, or b) negative net worth. Either way, they are living hand to mouth.  This suggests that 1) they have unmet needs, and 2) will spend the next available dollar trying to satisfy one of them. 

So far, this is just a thought experiment.  Let’s take a look at how personal consumption expenditures track disposable income.  Here is percent change from previous year:

Both in the grand sweep and in the year-to-year detail, the curves are pretty much in lock-step.

 Here is the data on a Log Scale:

That’s coordination about as close as you could ever hope to see in real world data.

And if wealth – or it’s perception – were the determinant, wouldn’t you expect some sort of a consumption bump during the housing bubble, when people felt wealthier than their incomes justified?  Let’s look at consumption expenditures per capita.

Here, there is a slope increase, mid last decade, but it’s not great, and it’s no greater than the slope of the late 90’s.  I suppose the tech boom must have had some people feeling wealthy then, as well.  But they weren’t that bottom 80%.  Note that the first graph indicates the personal disposable income was up in those periods as well.  In fact, they were the only up periods since about 1980.

There was also relatively low unemployment in those times, and thus more people with incomes.

Also, it just seems counter-intuitive in a world where, if real people think about money at all, it’s in a personal cash flow context, not in terms of wealth aggregates.  Consuption decision reasoning, to the the extent that it even occurs, is along the lines of: “If I buy this thing, can I still afford to feed my cat?”

So, here is question number 1:

Since to most people “wealth” is miniscule, non-existant, or worse, and given empirical data that closely links consumption to income, how can consumption depend “primarily on wealth rather than income?”

Now let’s look at Excess Reserves of Depository Institutions.

There’s 1.6 trillion QE dollars.  Any left-overs have gone to leveraged speculation causing commodity inflation.

But Farmer says: “I support interventions in the asset markets that try to jump-start the economy and reduce unemployment by boosting private wealth. That, in my view, is what quantitative easing has done.”

If any wealth has been boosted here, it is in the upper reaches of the already wealthy, not among the working stiffs who are highly inclined to spend the next dollar rather than hide it away in Luxombourg or the Cayman Islands.

So, here is question number 2:

How can QE money help the economy when it is either sitting idle or inflating commodity prices?

I have nothing in particular against Roger Farmer, about whom I know nothing, but I am also prompted to ask economists in general:

What in the hell is the matter with you?

So maybe my lack of faith in Economics is the point, after all.

Cross-posted at Retirement Blues.

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Where Has All The Money Gone, Part II – Finance Sector

In Part I we saw that labor’s earnings have lagged far behind GDP growth.  (More on earnings stagnation here) Meanwhile, corporate profits have grown at a rate that, until recently, increased over time, and they are now at a historically high fraction of GDP.
Here is a specific look at the Finance Sector. The graph shows finance sector profits as a percentage of total corporate profits – all after tax.

 
That’s a pretty impressive sweep up over time. I threw some best fit curves through the whole data set, and also though the peaks and valleys. Curves through the extremes are exponential.

Along with the increased percentage we get a dramatic increase in the data spread.

When lines jump around a lot, you can sometimes get clarification by looking at a long average. I tried that here with a 13 year average.

A long average filters out the hash, and reveals the underlying trend. Or, I should say, trends, since there are two, with a sharp break at the beginning of 1986. A best-fit least squares trend line on the data through ’85 is a near-perfect match to the average line, which barely even wiggles. We see a bit more action in the post-85 segment, but the new trend is still very clear, indeed. The earlier trend line in green is now the lower channel support line.

The finance sector has captured an increasing fraction of corporate profits, which have been growing at an increasing rate since WWII.  And the growth rates are greatest when the economy is doing the worst.  Take another look at the first graph.  The correlation of finance sector profit peaks with recessions is close to perfect.  Peaks are in Q2-1949, Q3-1952, Q4-1953, Q1-1958, Q1-1961, Q4-1970,  Q1-1986, Q1-1991, Q4-2001.  The peak in 1986 is the only one that does not correspond to a recession.

The finance sector provides a vital function.  It is there to facilitate and enable the wheels of industry to turn.  But policy matters.  What has happened in the age of deregulation and lax taxation is that the finance sector has come to dominate the economy.  This is madness. And here is your Great Stagnation, folks.

Beyond the point of supplying necessary financing for businesses and mortgages, financial manoeuvrings – speculation in particular, and most especially so with sophisticated derivatives that nobody knows how to rationally evaluate – become rent seeking.  This is a massive misallocation of resources, diverting capital from real investment into totally non-value-added financial tail chasing.

And I’m not the only who thinks so.  Here, Paul Krugman calling the whole operation A Giant Scam, quotes Andrew Haldane, Executive Director, Financial Stability, Bank of England:

In fact, high pre-crisis returns to banking had a much more mundane explanation. They reflected simply increased risk-taking across the sector. This was not an outward shift in the portfolio possibility set of finance. Instead, it was a traverse up the high-wire of risk and return. This hire-wire act involved, on the asset side, rapid credit expansion, often through the development of poorly understood financial instruments. On the liability side, this ballooning balance sheet was financed using risky leverage, often at short maturities.

In what sense is increased risk-taking by banks a value-added service for the economy at large? In short, it is not.

Haldane’s article was reposted at Naked Capitalism. What he is getting at is the derivatives market, the unregulated darling of the World of High Finance.  Estimates vary, since there is no good way to get a handle on it, but the highly leveraged derivatives market has a notional value somewhere between 10 and 25 times the aggregate value of global GDP.  In the wake of Phil Graham’s undoing of Glass-Steagal came a sea change in the way the Finance Sector does business, and along with this came a shift from risk management to risk-making.  As Haldane put it: “If risk-making were a value-adding activity, Russian roulette players would contribute disproportionately to global welfare.”

Since none of this activity does anything to create real wealth, it is nothing but rent-seeking.  That is bad, in and of itself.  Worse, still, in Krugman’s words: “Wall Street and the City were con artists extracting huge rents from an unwary public (and eventually dumping much of the cost, when things went bad, on taxpayers).”   What is perhaps worst of all is that the money locked up in these ventures is diverted from real investment.

So, here is the picture.  While the average earnings of working stiffs has been stagnant, at best, corporate profits have grown at an increasing rate.  Further, the percentage of those profits going to the Finance sector has also grown at an increasing rate.  Total profit growth is above exponential, and Finance Sector profit growth is super-exponential.

To summarize:
1) Over the last 30 years banking has devolved from a necessary financial function involved in the allocation of resources and management of risk to essentially non-value-added rent-seeking activities implemented through high risk practices.
2) When the whole house of cards came tumbling down, the losses were socialized, while the criminals who perpetrated the underlying fraud walked off not only scot-free, but with huge bonuses.

There might be some way to justify this if it were leading to greater GDP growth or a rising tide that lifted all the boats.  But the opposite has happened.  GDP growth has been in decline for decades, and the tsunami of profits floating the yachts in the Finance Sector has swamped all the dinghies.

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Where Has All The Money Gone, Pt I, Corporate Profits

INTRODUCTION

1) Rethug Speaker of the House John Boehner says that as a nation, “we’re broke“; Rethug presidential candidate Ron Paul claims America “should declare bankruptcy.”  I say these two are liars, and at least one of them is crazy.

2) Tyler Cowan says “we are poorer than we think we are,” due to mis-measurement of value, which might be true.  I believe his prescription for recovery is generally very bad, though.

3) In comments to my previous Angry Bear post, Bob McManus directed us to the writings of Michael Hudson, where we find his post Democracy and Debt.  This is must reading.  The relevant point here is that the increasing capture of wealth, as rents, by a creditor class impoverishes society in general, and this eventually leads to severe repression, major social upheaval, or both.  I whole-heartedly agree.

4) Jon Hammond’s guest post at Angry Bear shows that a more-or-less continuous decrease in real investment has occurred during the post WW II era.

In this series of posts, I intend to show that we are a wealthy nation, but that our wealth  has been increasingly captured by elite creditors, who, in my opinion, are strangling the economy by 1) extracting excessive rents and 2) diverting this wealth to financial tail chasing, rather than real investment.

WHERE THE MONEY HASN’T GONE

Here is a look at average hourly earnings, the typical income of a working stiff, presented on a log scale.

Like almost every time series you can imagine, including GDP, it exhibits a break near 1980.   The break is always to lower growth.  But, compared to most other data series, this break is especially sharp.

Hear is the same series compared to GDP, an approximate measure of the income of the nation, on a linear scale.  For this graph, each is normalized to a value of 100 in Q1, 1965.

While earnings have grown less than 8 times in 47 years, GDP has grown more than 20 times.

Clearly, the money has not gone to compensation of the workers whose labor actually creates the wealth of the nation.  That might explain some of the alleged envy.

CORPORATE PROFITS

As a first step in finding where the money has gone, let’s consider the growth of corporate after-tax profits since about 1950.  You can see it in this FRED graph.   It’s on a log scale, so constant growth would be a straight line.  There are lots of wiggles, but I see an increasing slope over time, and it’s not an optical illusion.

There are a lot of ways to parse this.  One is to connect the dip bottoms with straight lines.  I’ve done that with alternating red and blue to show the slope increasing over time.  The problem is selecting which bottoms to connect.  Some alternate choices are indicated in yellow.  The yellow lines define times of above normal profit growth: 1970 to 1980, 1986 to 1998, and 2001 through 2007.  Each of them leads to a correction, indicated by a purple line across the top of the decline.

After I did all that, it occurred to me to let Excel throw an exponential best fit line on the data set, and you can see that as well.

I see now that I could have included another yellow line from 1961 to 1967.  Notice that with each yellow line, the data set advances above the exponential best fit line before a sideways correction takes it below again.  After the correction is complete, profits increase again until the best fit curve is breached.  Or, they did until now.

Remember that on a log scale constant growth rate is represented by a straight line, and that the growth compounds, so that the underlying increase is exponential.  Sooner or later, that has to end.  Nothing in the real word can go to infinity.  Here we see an exponential curve on a log scale.  This demonstrates an increasing growth rate.  Therefore, the underlying increase is greater than exponential.  If exponential growth is unsustainable, what would you say about greater than exponential growth?

In fact, the whole trend might now be falling apart, as the last blue line has a much lower slope.  Also, for the first time following a correction, profits have stayed below the trend line, and the gap is increasing.

To show the extent of national income capture by corporations, here is a graph of corporate profits as a percentage of GDP.   I’ve divided the set into two segments: 1951 to 1979, and 1980 on, and had Excel place a linear trend line on each.  This division is somewhat arbitrary, but almost every economic time series you can find has a break point within a few years of 1980.  Division between ’79 and ’80 is the least favorable to my point that Profits/GDP had no trend in the post WW II Golden Age, but have trended sharply upward during the Great Stagnation period.

Profit/GDP growth was unusually poor from 1980 through 1986.  Then from late 2001 through early 2006 it exhibited the greatest growth ever.  But remember the denominator effect.  Nominal GDP growth increased rapidly following the ’80-’82 double recession; while GDP growth in this century has been generally slow.  The financial melt-down of 2008 caused a dip that was sharp and brief, but the rebound has not gone to a new high.  But even now, in the midst of anemic recovery, profit/GDP is hovering in the 9 to 10% range, far above historical norms.

CONCLUSION

The corporate profit growth picture looks unsustainable, and that is troubling.  What it means for the future is anybody’s guess.  But, what we get from it is the first partial answer to the question, “Where has all the money gone?”

Gone to profits, everyone.

A slightly different version is posted at Retirement Blues.

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GDP Revisions

This is just a short post to illustrate the magnitude of GDP revisions. I downloaded quarterly GDP data from BEA in June 2011. I went back to BEA this morning to update the file. Forgetting about GDP revisions, I thought I’d be adding 2 or three more quarters of data, but discovered that all the numbers since Q2 2003 had been revised. Prior values are unchanged. Plotted below is the difference between the June, 2011 numbers and what I found this morning.

The depth of the trough in Q3 2009 was $194 Billion worse than we thought just a few months ago. I was surprised to see the revisions go back a full 9 years.

Tyler Cowan got one thing right. We are poorer than we think we are.

Cross-posted at Retirement Blues

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Ron Paul Challenges Liberals – or Maybe Not

Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute has a couple of very interesting articles posted at Naked Capitalism,  Why Ron Paul Challenges Liberals, and the follow-up, Naked Capitalism, “A Home for All Sorts of Bircher Nonsense”

These are thought-provoking, in many ways insightful, and strike me as required reading, for a variety of reasons, including some valuable historical insights.  However, one thought they provoke from me is that the main thesis is spectacularly wrong-headed.  Stollar talks about what a great ally Paul’s staff was, when working on certain issues.  I should say, “when working against certain issues” or things, like war and the unfettered evil workings of the Federal Reserve.  The correct vocabulary is worth emphasizing.  Liberals and Libertarians may find common ground in what they are against, but it is quite unlikely that they will ever find anything substantial that they both are for.

Stollar goes on to point out what he calls “a big problem” with liberalism.  This is the mixture of two elements, support for federal power and the anti-war sentiment that arose with Viet Nam and has continued though today.  In the same paragraph, Stollar says, “Liberalism doesn’t really exist much within the Democratic Party so much anymore.”  This is an important thought, but he doesn’t pursue it, and as he goes on seems to conflate Democrats with Liberals, as suits his convenience.  In the final paragraph of the first post he refers to: “a completely hollow liberal intellectual apparatus arguing for increasing the power of corporations through the Federal government to enact their agenda.”  Seriously, WTF?  I have absolutely no idea what the hell that is supposed to mean.

The second article is especially weak, and essentially devoid of any intellectual content.  Stollar decides to “highlight a few of the reactions here without much of a rebuttal.”  Why would anyone do that?  Does he believe the reactions are self-refuting?   Is he too lazy to rebut, or does he simply not have a good rebuttal?

At least he clearly sets forth the thesis of the first article:  “that the same financing structures that are used to finance mass industrial warfare were used to create a liberal national economy and social safety.”   Here is the source of Stollar’s alleged intra-liberal conflict, that Paul is somehow supposed to illuminate and inform.  Though Stollar says: “I’ll be describing in much more detail the shifting of the social contract underlying this failure, which has nothing to do with Ron Paul and would exist with or without him.”  So referencing Paul in the first place was a bit of a red herring.

He then goes on to provide extended quotes from posts by David Atkins, who he describes as “wrestling with what liberalism is” and Digby, who he simply rejects out of hand, though with a lot of words that don’t quite reach the level of snark

What Stollar describes as “contradictions within modern liberalism”  boils down to liberalism needing big government to be interventionist, as Atkins demonstrates, but not imperialistic.  But this is a totally coherent position. The problem lies not with progressive liberalism, but with the practical realities of managing a power system – which is what governemnt is – in a way that advances the common good, while holding the drive for imperialistic and domestic domination in check.  This is going to be a central practical problem with any governing system or political philosophy – at least for one that takes seriously the idea of advancing the common good.  To say it is the problem of liberalism is to ignore human nature, political reality, and the entirety of history.

Thus, a liberal can hold the positions that American involvement in WW II was necessary, but that our involvement in Viet Nam was not.  Ditto Kosovo, vis-a-vis Iraq.   One can also recognize that the only entity with enough heft to balance the power of trans-national mega-corporations is government, but Stollar does not choose to give that any consideration.

Stollar concludes: “As the New Deal era model sheds the last trappings of anything resembling social justice or equity for what used to be called the middle class (a process which Tom Ferguson has been relentlessly documenting since the early 1980s), the breakdown will become impossible to ignore.  You can already see how flimsy the arguments are, from the partisans.

I don’t know how one gets from the systematic dismantling of the New Deal by successive Republican administrations (and you can include both Clinton and Obama in this list) to the New Deal model shedding anything at all.  And, no, I can’t see how flimsy liberal partisan arguments have anything to do with an assault on the middle class that has taken place from the right.

Stollar has constructed a straw man problem.  Which is a shame, since there are real problems to be dealt with.  One is the growth of right wing populism, as exemplified by the Tea Party – at least to the extent that is is real, and not a Fox News fabrication.  Another is to harness the energy of the Occupy Movements, which provide some evidence that there is progressive populism that could be a source of real political strength.  Most critically, though, as things stand now, there is no political left in this country with any actual power. 

Corey Robin describes the central problem of American liberalism in the 21st Century, and closes the loop back to Stollar’s Ron Paul idea like this.

Our problem—and again by “our” I mean a left that’s social democratic (or welfare state liberal or economically progressive or whatever the hell you want to call it) and anti-imperial—is that we don’t really have a vigorous national spokesperson for the issues of war and peace, an end to empire, a challenge to Israel, and so forth, that Paul has in fact been articulating.  The source of Paul’s positions on these issues are not the same as ours (again more reason not to give him our support).  But he is talking about these issues, often in surprisingly blunt and challenging terms. Would that we had someone on our side who could make the case against an American empire, or American supremacy, in such a pungent way.

Digging a level deeper, the reason we don’t have such a spokesperson is that our political system is essentially owned by corporate interests, which is why we get alleged liberals like Clinton and Obama in Democratic leadership, while genuine progressives like Bernie Sanders, Dennis Kucinich, and even Alan Grayson are marginalized.  On top of this, the right has a vigorous and powerful propaganda machine – hence the Tea Party; and the small number of progressive voices in broadcast media is nowhere close to providing a balance.

Money owns politics, and corporate interests, along with a small entrenched elite, own the vast majority of the money.  The key to achieving progressive solutions is to get the money out of politics.  But in the wake of Citizens United, that prospect is a forlorn hope.  That is my “coherent structural critique of the American political order” in one short paragraph.

Cross posted at Retirement Blues

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