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they emphasize that the high spending sectors reflect not only a shift in spending away from other sectors but also increasing prices this is effective writing the bureau of economic analysis produces price indexes by industry and these price indexes show rapidly escalating prices education is 8 9 times more expensive in 2015 than in 1980 within education higher education specifically is 11 1 times more expensive healthcare costs 4 8 times more than it did in 1980 medical insurance costs 8 7 times more and housing 3 5 times more thus the shift in spending toward education healthcare and housing cannot only reflect increased demand yeowza the cost of gallup s high spending categories increased from 25 of gdp in 1980 to 36 in 2015 but notice that they show their high numbers relative to gdp and gdp growth is slow so i have to ask how much of this apparent increase in the high spending is really due to the slowdown of gdp growth all of it using the same golden age trend values i used for my recent federal debt to gdp post the high spend number for 1980 drops from 25 of gdp to 23 1 for 2015 the number drops from 36 to 22 2 if gdp growth had continued at its 1946 1974 rate our spending on healthcare housing and education would have been a smaller percentage of gdp in 2015 than it was in 1980 the big change is the slowdown in gdp not the increase in healthcare housing and education this should give you an idea how serious the long term economic decline is but economists don t even talk about it they tell long boom stories instead let me go back to that quote about the bureau of economic analysis and the rapidly escalating prices i ll start where i left off thus the shift in spending toward education healthcare and housing cannot only reflect increased demand at a per unit level prices have also increased driving up the share of spending on these products this suggests that something is holding back supply something is holding back supply the phrase something is holding back supply is code for cost push inflation the combination of reduced supply slowing growth and rising prices indicates that there is cost pressure driving the inflation or you know to keep the there s no such thing people happy the answer to the question why is growth down is cost pressure the federal reserve finds itself having to print too much money to get the little economic growth that it gets and it has targeted two percent inflation to prevent outright economic decline prices are being forced up as henry hazlitt said to the point that they force an increase in the money supply hazlitt s words that s hazlitt s words hazlitt for the no such thing as cost push inflation people despite all the inflation we ve had economic growth is still slow and still getting slower i call it long term decline so does gallup and come to think of it john cochrane worries about long term decline too and since it s not just me this at least hints at how serious the cost pressure problem is oh and by the way the cost pressure arises from the growth of finance we can reduce the cost pressure reduce inflation and improve growth by reducing the accumulation of private sector debt until prosperity emerges or we can wait it out and become living proof that civilizations die by suicide at may 31 2023 2 comments email this blogthis share to x share to facebook share to pinterest tuesday may 30 2023 the long boom i found an article from the hoover institution the ten causes of the reagan boom 1982 1997 by martin anderson from 1997 there was a boom that started in 1982 is it in the old data maybe the first thing i did i went to alfred and compared the current gdp data to gdp data reported in 2001 the graph shows the plotted line beginning to thicken during the 1982 recession as the red and blue lines begin to separate the separation is visible shortly after the 1991 recession and by the end of the 2001 data the difference between the red and blue lines is 22 8 index units the change is gradual and small in my notes i wrote no remarkable differences when i sat down to write this thing i wondered why did i use 2001 data i did the graph over this time comparing the current gdp data to gdp data reported 30 january 1998 this is the first data vintage that shows all four quarters of 1997 the year martin anderson wrote his article this time the graph shows the plotted line beginning to thicken in the latter half of the 1970s the separation is visible by the end of 1984 on my screen and by the end of 1997 the difference between the red and blue lines is 56 4 index units the difference on this graph is almost 2½ times the size of the difference using the data reported in 2001 and the bigger difference developed in three years and nine months less time still the current gdp data runs higher than either of the others and the 2001 reported data is higher than the 1998 reported data but martin anderson wouldn t have been using the 2001 data when he wrote the article in 1997 i figure he was using the lower reported values but even using the low values he thought he saw a boom and other economists thought they saw a long boom the introductory statement below the title of anderson s article reads in the united states the fifteen year economic expansion that began in 1982 now called the long boom by economists is the greatest economic boom in history and it is still going i never heard of the long boom so i looked it up i found the long boom a vision for the coming age of prosperity paperback october 1 2000 by peter schwartz peter leyden and joel hyatt at amazon https www amazon com long boom vision coming prosperity dp 0738203645 and i found the long boom that wasn t and what we can learn by james pethokoukis march 2023 at aei https www aei org articles the long boom that wasnt and what we can learn felt better when i found that one pethokoukis links to a 1997 essay by peter schwartz and peter leyden on the long boom and says broadly the rapid productivity and economic growth of the late 1990s didn t continue into the 21st century as they and many others of that time predicted then he comes up with a list of ten things schwartz and leyden offer as scenario spoilers that could cut short the long boom one of those ten items seems to me to be the real economic show stopper new technologies turn out to be a bust they simply don t bring the expected productivity increases or the big economic boosts nailed it pethokoukis says but he lists nine more to me most of those are consequences that arise from economic failure like crime like tensions between china and the us and like the failure to deal with global climate change people always focus on things that are problems for themselves or things that are problems for society but almost no one focuses on things that are problems for the economy and those are the problems that need to be fixed i m thinkin monetary imbalances i had a similar response to martin anderson s list of ten the one that struck me as close to correct was this one monetary policy is next on the list during the past fifteen years our country has been blessed with two of the best leaders the federal reserve system has seen paul volcker and alan greenspan overall monetary policy has been stable and predictable and inflation has been low which has been a powerful factor in ensuring steady economic growth that kind of sound dependable monetary policy is essential for long term economic prosperity anderson tells what he wants from monetary policy stability predictability and low inflation i agree that sound dependable monetary policy is essential for long term economic prosperity i do not agree that anderson captures sound policy in his paragraph nor do i think that volcker and greenspan had sound policy it was good far as it went but it left things out i ve said it before volcker and greenspan and bankers in general think like bankers they think debt is a good thing because they are in the lending business and that s how they make their money so there is never a time when they are going to say the financial sector is too big there is never a time when they are going to think there is just too much private debt in this economy the bankers will never be first to argue that we must seek the level of debt that best promotes economic growth but if they ever come to support such a plan there will never come a time when they add and we have far too much debt already too much debt relative to the quantity of money is a monetary imbalance and remember you cannot use credit to reduce your debt new technologies no matter how good they are turn out to be a bust when people don t have the money to spend on them why did the tech boom not happen until the latter 1990s because starting in the mid 1980s there was the savings and loan crisis which slowed the growth of debt significantly and then in the early 1990s there was a substantial increase in the quantity of m1 money the money that people spend by the mid 1990s we had more money to spend and we had less debt to hold us back that is why the tech boom happened at that time and why our economy was so good at that time at may 30 2023 1 comment email this blogthis share to x share to facebook share to pinterest thursday may 25 2023 among the features of the decline of civilization it is easier to find a profound new analysis of the economic problem than it is to find someone who can appreciate it at may 25 2023 no comments email this blogthis share to x share to facebook share to pinterest wednesday may 24 2023 the tides of prosperity the graph shows three periods of prosperity the roaring twenties the golden age of capitalism and the new economy of the latter 1990s shooting from the hip i figure 9 years of prosperity in the roaring twenties 25 years during the golden age and 6 for the new economy that s a total of 40 years of prosperity out of 100 years and more shown on the graph forty good years sixty bad years we can do better it should be easy to do better the graph provides clues 1 prosperity only happens when the plotted line is going up the line goes up when private debt is growing faster than public debt but prosperity does not begin until the ratio is low enough to let it happen 2 when the plotted line gets too high prosperity gives way to hard times 3 in hard times there is no relief until the plotted line is low enough for prosperity to begin again these things the graph shows what the graph does not show is that political debt ceiling strategies by forcibly reducing federal spending will ceteris paribus increase the private to public debt ratio and move us away from the low that we need to reach so that prosperity can begin again at may 24 2023 1 comment email this blogthis share to x share to facebook share to pinterest labels debt ceiling 2023 prosperity monday may 22 2023 gross federal debt as a percent of actual and golden age trend gdp the graph uses annual data so there is nothing yet for 2023 the graph shows the federal debt for 2022 as 121 1 of gdp blue it shows the federal debt for 2022 as 65 7 of what gdp would have been red if gdp growth had not fallen behind its 1946 1974 exponential trend in other words if gdp growth continued at the 1946 1974 rate the gross federal debt as of 2022 would be less than 66 of gdp not more than 121 i did not change the gross federal debt numbers i m not saying the low percentage is realistic i m saying it would be realistic if policymakers knew what they were doing and could maintain decent economic growth so anyway all this nonsense about the debt ceiling but if gdp kept growing at its 1946 1974 trend our massive federal debt today would be only about half the size it is as a percent of gdp people who complain that the federal debt is too big unfailingly offer percent of gdp numbers as proof of their claim but those same people say gdp growth is too slow and well they are right about that but then to turn around and show the federal debt as a percent of this slow growing gdp well it makes the federal debt look bigger than it really is so those people are either liars or just plain stupid it s not that the federal debt grew all that fast the federal debt grew yeah but not as fast as it looks because gdp growth has been so slow for so long as a percent of gdp the gross federal debt would be only about half what it is today if gdp had maintained its 1946 1974 growth rate hey here s my spreadsheet at dropbox at may 22 2023 1 comment email this blogthis share to x share to facebook share to pinterest labels debt ceiling 2023 thursday may 18 2023 for the irony and for the debt ratio i searched google scholar for analysis of federal debt growth without quotes on the first page of results i found in search of an optimal debt ratio for economic growth by david j smyth and yu hsing at wiley from contemporary economic policy volume 13 issue 4 october 1995 i had high hopes from the abstract results also indicate that the optimal debt ratio is 38 4 percent for debt held by the public and 48 9 percent for total debt thus the current 1993 debt ratios of 50 9 percent for the debt held by the public and 68 2 percent for total debt are far greater than the desirable levels with percentages like that and especially as they mention debt held by the public i figure when smyth and hsing say debt ratio they mean federal debt relative to gdp or maybe relative to gnp as their data is from 1993 the change from gnp to gdp as the standard measure occurred in the early 1990s i recall but i am fuzzy on the exact date anyway my snide remark of the day is this as the ink was drying on their report the new economy of the latter 1990s was just getting under way the new economy of the latter 1990s is the one alan greenspan described in 1998 as without question one of the best economic performances in our history so we got super good growth even though smyth and hsing say the ratio of federal debt to gdp is far greater that it should be for optimal economic growth to be achieved the economy proved them wrong see i think they are using the wrong debt ratio i think they should have used the debt ratio that i have been showing lately the private debt to public debt ratio but even if i m wrong about their debt ratio and my debt ratio and things in general it is still true that we got optimal or better economic growth almost immediately after smyth and hsing said the debt ratio was preventing that outcome i love the irony at may 18 2023 1 comment email this blogthis share to x share to facebook share to pinterest wednesday may 17 2023 polarization from economic harmonies by frédéric bastiat 1850 at the online library of liberty as great as is the difference between the plowshare that feeds and the sword that kills so great must be the difference between a nation of workers and a nation of plunderers it is not possible for there to be any common ground between these two they cannot have the same ideas the same standards the same taste...
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