Decline of the Empire

The Economy Is Going Nowhere Fast

Even official government statistics show the U.S. economy slowing down, if that phrase is the right way to describe ... what? An ongoing economic catastrophe? A bad joke? A malaise? A snafu? The BEA's second guess at Gross Domestic Product (GDP) was not revised up, so the annual growth rate in the first quarter remained at 1.8%. Rick Davis of the Consumer Metrics Institute tells us the real rate of growth would have been worse had they used a more realistic GDP deflator.

The importance of the price deflater used by the BEA cannot be overstated. In calculating the "real" GDP the BEA continued to use an overall 1.9% annualized inflation rate, which is substantially lower than the inflation rates being reported by any of the BEA's sister agencies.

The mathematical implications of the deflator are simple: a lower deflator creates a higher "real" GDP reading. If April's CPI-U (as reported by the Bureau of Labor Statistics) of 3.2% year-over-year inflation is used as the deflator, the reported 1.84% annualized growth rate shrinks to a 0.56% annualized rate, and the "real final sales of domestic products" is actually contracting at a 0.63% rate. If instead of the year-over-year CPI-U we were to use the annualized CPI-U from just the first quarter (5.7%), the "real" GDP would be shrinking at a 1.82% annualized rate, and the "real final sales of domestic products" would be contracting at a recession-like 3.01%.

Pay no attention to that man behind the curtain! The last year was disappointing, too.

In the longer view the BEA reported that the year-over-year (trailing twelve month) change in the "real" GDP was 2.3%, the lowest year-over-year growth rate reported since 2009. And governmental expenditures at all levels continued to shrink, with the new "austerity" at the Federal level (i.e., expiring stimuli) shaving 0.68% off of the overall growth rate, and genuine state and local frugality dropping the headline growth rate by another 0.39%.

And then there is the alternative estimate of GDP called the GDP(I), where I = income. As Justin Wolfers explains, The New GDP Data Is Bad. The Hidden Data Behind It Is Worse.

This morning the Bureau of Economic Analysis (BEA) released its latest estimates of GDP. And there’s bad news, hidden in the details. Most analysts are focused on the fact that GDP growth in the first quarter of this year was unrevised, remaining at 1.8%. But they’re focused on the wrong number.

National accounting aficionados know that hidden beneath the headline number is an alternative estimate of GDP. This alternative is often called GDP(I), because it is based on income data, rather than spending data. And GDP(I) is actually a more reliable estimate. Unfortunately, this more accurate indicator tells us that GDP grew by only 1.2%. That’s bad news.

In fact, this alternative indicator says that GDP is still below its level from late 2006.

Do you find it strange that the headline GDP number gets all the attention, even though the BEA calculates other, less rosy estimates? Will wonders never cease?

The question of the day is whether the U.S. (and global) economy is going to slow down further as 2011 grinds on. It is noteworthy that the anemic growth we have achieved so far this year, which is described in some detail by Comstock Partners, has occurred during the Fed's second round of quantitative easing (QE2). This led Comstock to note—

The stock market has now stalled for over three months and appears to be in the process making a top.  The S&P 500 reached an intra-day high of 1344 on February 18^th, backed off and then broke out to a new high of 1370 on May 2^nd. It has since declined to well below the 1344 mark, a strong indication that the breakout has failed and that a new decline may be underway. This would be similar to the pattern of 2010, when the market dropped 17% following the end of QE1.  That time the market was saved by the initiation of QE2.  The Fed, however, is running out of ammunition, and we doubt that a QE3, if ever implemented, would be that effective.

Would another round of quantitative easing be ineffective? Is the Pope Catholic? Does a bear defecate in the woods? Do you believe inflating S&P stock values creates jobs? You do if you're wealthy and you're holding lots of stock!

Although the President is spending a lot of time ... acting presidential, and Congress has been busy renewing the Patriot Act, the government hasn't done much to spur job creation lately. Government inaction has made the New York Times' David Leonhardt worried about the future.

The latest economic numbers have not been good. Jobless claims rose last week, the Labor Department said on Thursday. Another report showed that economic growth at the start of the year was no faster than the Commerce Department initially reported — “a real surprise,” said Ian Shepherdson of High Frequency Economics.

Perhaps the most worrisome number was the one Macroeconomic Advisers released on Wednesday. That firm tries to estimate the growth rate of the current quarter in real time, and it now says annualized second-quarter growth is running at only 2.8 percent, up from 1.8 percent in the first quarter. Not so long ago, the firm’s economists thought second-quarter growth would be almost 4 percent.

An economy that is growing this slowly will not add jobs quickly...

So, David, what's the solution?

The most sensible response for Washington would be to begin thinking more seriously about taking out an insurance policy on the recovery. The Fed could stop worrying so much about inflation, which remains historically low, and look at how else it might encourage spending. As Mr. Bernanke has said before, the Fed “retains considerable power” to lift growth.

The White House and Congress, meanwhile, could begin talking about extending last year’s temporary extension of business tax credits, household tax cuts and jobless benefits beyond Dec. 31. It would be easy enough to pair such an extension with longer-term deficit reduction.

Any temporary measures will eventually need to lapse, of course. But the current moment remains a textbook time to use them — when the economy is struggling to emerge from the aftermath of a terrible recession...

Oh, my — the Fed should stop worrying so much about inflation! Leonhardt's not missing any meals or sweating prices at the pump, no siree. It's still a textbook time to apply neo-Keynesian stimulus.

Thus Leonhardt recommends more of the same policies that have failed miserably to date. Presumably this new application of the "More Is Better" rule would include a new round of quantitative easing, for the Fed still "retains considerable power" to lift growth, and we have just witnessed that considerable power in action. It is as though David Leonhardt lives in a reality-proof bubble, or perhaps the Times itself exists in such a bubble and it's no coincidence that Leonhardt, who prefers being reality-proof, works there.

Whatever the answer to that conundrum, it seems clear enough that our economy is going nowhere fast. Set your expectations accordingly.

Bonus Video — EuroPacific Capital's Michael Pento is not feeling good about our prospects.

 

The Influencing Machine

Laura Miller of the online magazine Salon has written a review of a book The Influencing Machine by Brooke Gladstone, who hosts National Public Radio's On The Media. This deserves comment.

Miller sums up the central premise of Gladstone's book.

The fundamental argument of "The Influencing Machine" is that the media and the public are far more intertwined and mutually implicated than the public chooses to acknowledge. The book's title comes from a delusion common in schizophrenics that some terrible outside entity is forcing shameful, unbidden thoughts into their heads when in fact those thoughts originate in their own minds.

"The media don't control you," Gladstone writes. "They pander to you." Until we're willing to fess up to our own complicity, and to wrestle with the "neural impulses that animate our lizard brains," we will go on getting nothing better than "the media we deserve."

This is complete nonsense. The media (here NPR and Salon) want you to believe that they are merely catering to your interests in what they report and how they report on it, that we're all in this together. That is their delusion, not yours. In particular, Gladstone is eager to dispel the notion that the media is designed to control your thoughts. Hence, the media serves no propaganda function whatsoever.

It is always hard to write about being inside the box versus being outside the box. First, you must know there is a box, and where its boundaries are. My latest attempt was Thinking Inside The Box — Part II, which references the original article. I am going to assume everything I said in those posts today. Read them if you haven't done so already.

Here's the bottom line: those at places like Salon or NPR, who think of themselves as the better half (the thinking liberal half) of the mainstream, live entirely inside the box. Virtually everything they serve up is propaganda. The problem is that those inside this particular part of the box don't know they live within a consensual reality everyone is supposed to accept without question. It won't be a fish that discovers the water it swims around in. Such unawareness gives rise to nonsense like Brooke Gladstone's The Influencing Machine.

Thus NPR and Salon serve up endless reporting on our corrupt, dysfunctional politics, as if national politics matters to down and out Americans who lost faith in the 2-party system a long time ago. That's the real story. They are happy to report on Congress's dysfunction—it's all in good fun!—but never discuss the rampant corruption underlying it. Most of this reporting is "horse race" stuff—who's winning and who's losing. In May, 2011 there is more reporting (in all media) about the upcoming presidential race to be settled in November, 2012—which Republicans will run?—than there is reporting about our crashing housing market. Of course neither political party has a clue about how to fix that.

NPR constantly refers to "the economic recovery" as if it has concrete existence, and is not a self-serving figment of some politician's (or economist's) overactive imagination. When more bad news rolls in, NPR is always quick to ask: will this latest economic atrocity be a "setback" to the recovery? Will it "derail" the recovery? The majority of Americans think the recession never ended—for good reason. We do of course have a statistical recovery—the government numbers NPR feeds us daily prove it. The circle just goes 'round and 'round.

NPR, which broadcasts from within Washington D.C. and is part & parcel of Imperial society there, does far more reporting on the war on "Terrorism" than it does on the sad state of Mainstreet America. Thus on any given day we typically hear more about Afghanistan and Pakistan than we do about the goings on in the 50 states outside the Beltway. And we should all know by now that the war on "Terrorism" is issue #1 on the Imperial agenda for reasons too numerous and complex to go into here.

In fact, if you had gotten all your information on American society from NPR over the last 10 years, you would be quite amazed to learn that 1 in 6 Americans live in poverty, or that more than 43 million Americans receive food stamps. I know this because I've used NPR as my principal mainstream media source over those last 10 years. These are also stories those in the Imperial capital are not eager for you to hear.

So when Brooke Gladstone tells you that NPR is just giving you what want—"they pander to you"—remember that the primary function of public radio (and CBS, NBC, and so on) in 21st century America is to dispense propaganda. Gladstone wants to ridicule the idea that there is a "Ministry of Propaganda" telling those on Few All Things Considered and Katie Couric what to say, and of course there isn't one. Media influence is far subtler than that because those handing out "the news" have a vested interest in the status quo, and have internalized the values of the elites (political or economic) who own the news services and run this country.

Too Glamorous To Fail

HBO recently aired its movie Too Big To Fail, which covers the financial crisis of September/October 2008. The movie is based on Andrew Ross Sorkin's detailed, intimate history of the crisis. I haven't read the book, but I imagine (hope?) it contains stuff like this—

Ex-Goldman CEO Hank Paulson thought about the last time a woman had sucked him off.  How pleasurable it had been. And now here he was, extorting the Congress for 700 billion dollars, a number he had made up out of thin air, telling them that if they didn't give the too-big-to-fail banks an epic blow job, the world would end next week. Nothing compared to this!

And now that we've got the Hollywood version starring William Hurt as Paulson, Paul Giamatti as Ben Bernanke and James Woods as Lehman CEO Dick Fuld, among many others in the all-star cast, the big banks are too glamorous to fail. I found a good review of the film by Charles K. Wilbur—

Let me share some reflections and reactions on watching the film twice.

1. The focus is on Wall Street and the financial crisis created by its rash risk-taking. Little to nothing is said about the real victims of their manipulations—the millions who became unemployed as a result and the millions who have lost or are about to lose their homes to foreclosure. This is like a movie about slavery that focuses on debates between slave owners and abolitionists while omitting the cruelties slave-owners visited upon their slaves...

4. The film ends shortly after the meeting with the nine banks. Bernanke and Paulson are in a room together and Bernanke asks, referring to the $125 billion capital infusion: "They will lend it out won't they?" Paulson quickly replies: "Of course they will!" He then slowly turns and looks out the window and more quietly says again: "Of course they will." The film ends with a series of statements appearing on the screen:

Following the passage of TARP, banks made fewer loans and markets continued to tumble.

Unemployment rose to over 10 percent and millions of families lost their homes to foreclosure.

In 2009 panicked markets stabilized and the slide into a global depression was averted.

The biggest banks repaid their TARP money.

In 2010, compensation on Wall Street rose to a record $135 billion.

Ten banks now hold 77 percent of all US bank assets.

They have been declared to be too big to fail.

The book and the HBO drama thus serve to solidify the comforting message that "panicked markets stabilized and the slide into a global depression was averted." All mainstream media commentaries on the financial crisis and the bailouts are careful to include this rationalization. You know, so the world makes sense to unschooled philistines like us.

Let's fast forward to May, 2011. The bailed-out banks are more consolidated, more powerful than ever before. They are now too bigger to fail. Unfortunately for the slaves, the risk that the slave-owners will run amok once again are enormous. Yahoo's Daily Ticker reports on why knowledgeable people are so worried.

In "Reckless Endangerment," co-authors Gretchen Morgenson and Josh Rosner examine the origins of the crisis, starting in the early 1990s. The co-authors pull no punches and aren't shy about placing blame... Having taken a long, hard look back, I [Aaron Task] asked Morgenson and Rosner about what worries them today and looking forward.

Too Big to Fail: Now, Even Bigger!

"We have even more 'too big to fail' institutions; more politically interconnected, very deep and wide institutions that could create another systemic event," says Morgenson, a Pulitzer Prize-winning columnist at The New York Times. "It's almost as if the situation that brought us to Fannie Mae and Freddie Mac having to be bailed out has now been squared or quadrupled. It's worse, not better."

Rosner, an analyst at Graham Fisher, wholeheartedly agrees.

"The risks are enormous" because there's even more concentration of assets among the biggest banks, which are "too big to analyze and manage," he says.

If the financial system was a "house of cards" before the crisis, the situation is worse today because back then investors had "some sense the numbers being given in annual reports and quarterly filings were accurate," Rosner says. "Now we know the government seems to be [complicit] in allowing them to fudge those numbers."

This is just what we would expect in a declining Empire, in a corrupt, failing society. Let's wait a few years before we proclaim that a global depression was averted. And what we have now is no walk in the park, notwithstanding that in 2010, compensation on Wall Street rose to a record $135 billion.

First we've got the trailer to the HBO movie, and then the interview with Morgenson and Rosner. I hope you'll take the time to watch both.

 

 

Remedy du Jour -- May 28, 2011

Gil Scott-Heron died yesterday at the age of 62. And while he was known as the "founding father of rap" and I think rap music is shit, he did leave us The Revolution Will Not Be Televised, which seems as relevant now as it did in 1970. Except of course for the fact that America's grazing sheep, always referred to as "consumers" in the media, won't be rioting in the street anytime soon. (Unless the football season is canceled.) Not only will the revolution not be televised, but Scott-Heron's song will probably be used to sell you some more crap you don't need and can't afford. Perhaps it already has been. So that's our first video. Also try Scott-Heron's Winter In America (1974).

The second clip is Truman Sleeps written and played by Phillip Glass. This song was used in the great 1998 film The Truman Show. I will be doing a post on that movie soon. After that we've got Driving by Everything But The Girl (1990). It is Memorial Day Weekend after all.

We'll finish up with Tom Scott and the LA Express doing Sneaking In The Back (1973) I'll bet you haven't heard this one in a while!

Enjoy.

 

 

 

 

The Oil Crunch — Are We There Yet?

DOTE reader Gail sent me the peak oil video shown below. I watched some of it, and thought it was pretty good as such reports go. (I've seen a lot of bad ones.) As Americans start their engines this Memorial Day Weekend to kick off the summer driving season, here's a gentle reminder that the world has changed.

You might ask yourself — why don't we see reports like this in the American media?

 

Some Rich People Aren't Feeling Rich Enough

You've probably been laboring under the misapprehension that the rich are doing just fine. And I admit it,  I have promulgated that view over and over again here at DOTE. But it's not true. I've been misleading you. Some of the rich don't feel very rich at all, especially when they compare themselves to people who are much richer than they are.

We have a lot of problems in the United States—many people can't afford to buy food or pay their energy bills, 77% of them live paycheck to paycheck, and 75% of them may not be able to raise $2000 in an emergency—but the rich not feeling rich enough is surely something we need to worry a lot about right now.

Catherine Rampell at the New York Times' Economix blog updates us on this tragic situation.

The Tax Policy Center has updated its figures on the income distribution in America, which we’d previously written about in a post about why most rich people don’t feel very rich. They have now crunched income levels for every single percentile, and the numbers refer to 2011 rather than 2010. So I’ve updated my chart on this subject.

The graph below shows how much income is earned by a household at any given percentile in the income distribution, based on these new numbers for 2011:

Catherine explains the problem below. I've combined text from her original article (linked-in above) and this recent update.

But there seems to be a broader fissure underlying this discussion: why don’t people at the 90th percentile of the income distribution feel particularly rich?

The answer is simple: because any Americans who are richer than this cohort are so much richer...

Incomes grow much, much faster at the top end of the income distribution than in the middle or at the bottom end [graph above]. That is, the disparity in income between one percentile and a consecutive percentile is bigger among the very rich.

For example, the difference in income between a household at the 50th percentile and a household at the 51st percentile is $1,237 ($42,327 versus $43,564). But the difference in incomes between a household at the 98th percentile and the 99th percentile is $146,118 ($360,435 jumps up to $506,553).

The gaps become even wider at the extreme top of the income ladder: A family at the 99.5th percentile makes $815,868; its neighbor at the 99.9th percentile makes more than double that, at $2,075,574 a year.

In fact much of the rise in inequality over the last few decades has been because of the increasing inequality isolated among the very top members of the income distribution, as America’s wealthiest have pulled further and further away from their slightly less wealthy peers.

This is outrageous. It's just not fair. Imagine being in their shoes. Suppose you're living in Midtown Manhatten, where the mean household income is $434,824, or you're living in Buell Mansion-Cherry Hills Park in Cherry Hills Village south of Denver, where the median income is $582,129. Your annual income is right at the 98th percentile—$360,435. But your next door neighbor's income is twice that much. And your house is just as big as his, but he's got double the income to keep it up with! He installs a new jacuzzi every year. Your jacuzzi is a few years old and fading fast. And don't even start talking about swimming pools, tennis courts and weight rooms.

And that's merely income. You know how it is—money just flies out the window! Where does it all go? What about personal wealth? Yahoo's Business Insider told it the way it is in You Won't Feel Rich Until You Have $7,500,000.

Everyone has a number. It's a monetary value; if you reach it, you'll feel like you are rich and can retire. This is lovingly referred to as F.U. money.

But that number has been creeping higher and higher. Nowadays, just being a millionaire doesn't seem to cut it.

According to The New York Times, people in the top 10% of earners don't feel like they're making a lot. They only consider themselves to be middle to upper-middle class citizens...

Fidelity Investments conducted a study on wealth, and the results seem to agree. Just being a millionaire isn't enough.

After surveying 1,000 households with an average of $3.5 million investable assets, 42% said they didn't feel rich. So, how much money would it take for them to feel secure? The response: about $7,500,000...

"Wealth is relative, and to some extent the more you have the more you realize how much more you need," said Sanjiv Mirchandani, president of National Financial, a Fidelity subsidiary in response to the survey.

So we ask, what's your number?

What's my F.U money?  Do you mean my fuck you number? The comfortably well-off or filthy rich have already said fuck you to 90% of Americans. So I guess you must mean the magic number where I get to say, were I in their position, fuck you to the rest, the very wealthiest among us.

Pick a number from among the integers. Any number will do.

America's Invisible Energy Policy

Once in a while I point out that the United States lacks an energy policy to deal with our oil problems, but we do have one. You can be forgiven for not knowing much about it because that energy policy is largely invisible. I was reminded about it by a story at physorg.com called $25,000, 350-mile-per-charge electric car could be reality by 2017, DOE says.

In an event flanked with all the electric cars that have recently come to market, and a handful of those that are poised for sale later this year, U.S. Energy Secretary Steven Chu [left] and L.A. Mayor Antonio Villaraigosa flipped the switch May 13 on the 500th electric-vehicle charging station installed by Coulomb Technologies as part of its ChargePoint America network.

Coulomb, based in Campbell, Calif., received $15 million last year from the Department of Energy, and $22 million in private funds, to install 4,600 chargers across the country by the end of 2011. About 1,600 are slated for California, 210 of which have so far been installed. L.A. currently has 71 Coulomb charging stations, including the one installed today in the California Science Center parking lot.

"The Department of Energy is happy to be a part of this [event], but more importantly we're very happy to be really trying to push for the electrification of vehicles in the U.S.," Chu said. "The reason is very simple. We have to diversify our transportation energy."

There's part of the policy—electrification of vehicles in the U.S. Here are the details.

Oil prices may be in flux right now, [Chu] said, but developing countries' demand for limited oil resources will continue to push prices higher. He noted that China sold 16.7 million vehicles in 2010 and will sell 20 million cars annually within the next couple of years. The U.S. sold 12 million cars last year.

"Because of increased demand, we've got to think of all the other things we can do in transportation. The best is efficiency," Chu said.

Efficiency! Who could object to that? We can disregard 19^th century cranks like Stanley Jevons, who noted in his book The Coal Question that greater efficiency led to more, not less, energy consumption over time. Here's the money quote.

Batteries are the "heart" of electric vehicles, [Chu] said, adding that the Department of Energy is funding research that will drop the cost of electric-vehicle batteries 50 percent in the next three or four years and double or triple their energy density within six years so "you can go from Los Angeles to Las Vegas on a single charge," he said. "These are magical distances. To buy a car that will cost $20,000 to $25,000 without a subsidy, where you can go 350 miles [on a single battery charge] is our goal."

It is not an accident that Chu used the word "magical" in this context. As I first described in Steven Chu's Energy Miscalculations, Chu has a seemingly limitless, abiding faith in the power of science & technology to solve all our problems, as if by magic. To see what I mean, watch this 2009 Charlie Rose interview of Chu, starting at about the 47:00 mark. Before serving as Obama's energy secretary, Chu headed up the Lawrence Berkeley National Laboratory. Chu's view of life's complexities is simple. Fund the national labs, give the best scientific minds working there some money, let them play around for a while, and voilà! — a solution will appear. 

There are some problems with this happy scenario, to wit—

• It doesn't require that Americans change their behavior much. They will use a battery recharging station instead of a gas station. This is why Chu was the right man for the job.


• Replacing our current liquid fuels infrastructure will take decades. So far, a whopping $37 million has been spent to build 4600 charging stations across the entire United States.


• Chu's magical time frame for the $20-25,000 car which will go 350 miles on a single charge is six years from now. Conveniently, Chu will be long gone by then, even if Obama wins re-election. But the price of oil and gasoline is already exorbitant in 2011, so I guess we're all expected to wait around until 2017 to see if his science experiments worked.


• Assuming the experiments do work, how many Americans will be queuing up to buy a $20-25,000 car in 2017? Most Americans don't have a pot to piss in now. They will be in much worst shape in 6 years. Only 12 million cars were sold in the United States last year, which is considerably lower than sales were during the "boom" years. What will the fleet turnover rate be in 2017? There are 250 million cars and light trucks in this country. How many decades will it take for these electric vehicles to significantly penetrate that market?


• Unfortunately, as I described in The Secretary Of Synthetic Biology, there is a very good chance these technological advances in battery technology will not occur. Although I was speaking of 4^th generation biofuels in that older article, the same reasoning applies to batteries.

And that's not everything there is say on this matter. Where are all the wind farms, the solar concentrators, and the rest that will eventually power all these plug-in electric vehicles? They don't exist now, and they won't exist in 2017. Or thereafter.

The more fundamental problem of course is that the economic growth party is coming to an end. When Obama chose Steven Chu, he was selecting a Nobel Prize-winning physicist who fervently believes there are no limits to growth, a man who presumably would oversee the technological breakthroughs required to support that growth in the future. Chu assures us that the coming energy changes will not disrupt anybody's life, which will basically go on as before.

As things stand, we've been left holding the bag. We've got nothing.

Well, OK—there's the Chevy Volt. GM plans to make 16,000 this year.

I ran across a Ted Talks video featuring Naomi Klein which seems apropos here. Klein is politically conventional (left-wing version). She belongs to the liberal/progressive/Grist/Daily Kos/Jon Stewart wing of the Democratic Party. Thus in the video below, she talks about how the depletion of easily recoverable oil has forced the development of Alberta's tar sands, which she regards as an environmental problem, and a climate change problem, and not an alarming warning sign, like ultra-deepwater oil, of impending scarcity due to our inability to produce enough crude to keep things running.

Thus it seems that these aptly-named progressives also believe in unlimited technological progress! Concerns about "peak oil" (or other limits to growth) have never been on the agenda of the liberal/progressive/Grist/Daily Kos/Jon Stewart wing of the Democratic Party. These people think that all we have to do is build some wind farms here, a few solar arrays there, and then electrify our transportation system. Sound familiar?

But Naomi is learning. As you listen to her talk Addicted To Risk, think about Steven Chu and his magical science experiments. Ask yourself why doesn't Chu consider the possibility of failure?

 

At Least 46.5% Of Americans Are "Financially Fragile"

Everybody knows most Americans are behind the eight ball financially. Simply put, they have little extra cash or savings. Once in a while, some economists do a survey to find out just how little money most Americans actually have. Others like me report the terrifying results, a few people shake their heads and frown, and then life goes on as before. This is one of those kind of stories, similar to January's post  29% Of Americans Say It's Difficult To Afford Food.

The Wall Street Journal's Phil Izzo reports that Nearly Half of Americans Are ‘Financially Fragile’.

Nearly half of Americans say that they definitely or probably couldn’t come up with $2,000 in 30 days, according to new research, raising concerns about the financial fragility of many households.

In a paper published by the National Bureau of Economic Research, Annamaria Lusardi of the George Washington School of Business, Daniel J. Schneider of Princeton University and Peter Tufano of Harvard Business School used data from the 2009 TNS Global Economic Crisis survey to document widespread financial weakness in the U.S. and other countries.

The survey asked a simple question, “If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?”

In the U.S., 24.9% of respondents reported being certainly able, 25.1% probably able, 22.2% probably unable and 27.9% certainly unable. The $2,000 figure “reflects the order of magnitude of the cost of an unanticipated major car repair, a large copayment on a medical expense, legal expenses, or a home repair,” the authors write. On a more concrete basis, the authors cite $2,000 as the cost of an auto transmission replacement and research that reported low-income families claim to need about $1500 in savings for emergencies.

Now, the last time I checked, 2 + 2 still equals 4, and following the stringent rules of mathematics, 22.2% (probably unable) + 27.9% (certainly unable) = 50.1%. Thus at least half of Americans probably can not come up with $2000 in a pinch. And let's face it, that's not a lot of money in today's happy world. As Izzo notes, an unexpected major car repair or medical co-payment (assuming you've got insurance) could easily breach the $2000 mark.

But what about this probably able group? Just as I am proficient in arithmetic, English is my native tongue, thus I am able to write these posts, conduct conversations in that language, and so on. The phrase probably able can also be taken to mean maybe not, as in there is some possibility those in this group could not come up with $2000 in an emergency. And this next statement from Izzo seems to back that reasonable interpretation up.

Financial fragility isn’t limited to low-income groups. “Households with socioeconomic markers of vulnerability (income, wealth, wealth losses, education, women, families with children) are more likely to be financially fragile, and substantially more so,” the authors write.

“The more surprising finding is that a material fraction of seemingly ‘middle class’ Americans also judge themselves to be financially fragile, reflecting either a substantially weaker financial position than one would expect, or a very high level of anxiety or pessimism. Both are important in terms of behavior and for public policy.”

Following the now established rules of arithmetic, 50.1% + 25.1% (probably able) = 75.2%, meaning that 3 out of 4 Americans are not certainly able to come up with $2000 if they need it.

Unfortunately, I am unable to look at the original study to gain more insight into what "coping methods" people would use unless I pay a $5 fee, which I refuse to do. How would people try to raise the money?

Lusardi, Schneider and Tufano also looked at the ways in which people coped with an unexpected expense. Most would use multiple methods ranging from dipping into savings, asking for help from family and friends, using loans or credits cards, taking out payday loans or selling possessions.

“Taken together with those who would pawn their possessions, sell their home, or take out a payday loan, 25.7% of respondents who were asked about coping methods (equal to 18.6% of all respondents) would come up with the funds for an emergency by resorting to what might be seen as extreme measures,” the authors write. “Along with the 27.9% of respondents who report that they could certainly not cope with an emergency, this suggests that approximately 46.5% of all respondents are living very close to the financial edge.”

According to the economists who carried out the survey, these 46.5% are the financially fragile, hence Phil Izzo's headline. In other words, "financially fragile" is a euphemism for living on the edge of total financial disaster (homelessness, soup kitchens, and so on). Or to use a colloquialism, this felicitous phrase describes those who are only a medical bill (or a car repair) away from being up shit creek without a paddle.

However you interpret the survey results, it is crystal clear that most Americans, including many of those in the Middle Class, do not have sufficient cash on hand to cope with an emergency. As I reported last year, 77% of them are living paycheck to paycheck (or government transfer payment to government transfer payment).

Once upon a time, this was the wealthiest, greatest country on Earth. It is still the wealthiest, but most people don't get to share in it.

Bonus Video — Uncle Jay explains how euphemisms work.

 

A Declaration Of Empire?

In his recent editorial A Declaration Of Empire, writer and Boston Globe columnist James Carroll warns us that proposed changes to the National Defense Authorization Act would vastly expand the boundaries of the U.S. military mission.

The House of Representatives is debating a new definition of America’s military mission in the world, replacing the mandate adopted immediately after 9/11. Instead of merely authorizing the president to make war against those who “committed or aided” the 2001 attacks, the proposed National Defense Authorization Act expands the notion of America’s enemy to include forces “associated” with named antagonists like Al Qaeda and the Taliban.

According to its critics (including numerous House Democrats who asked last week that such language be dropped), this seemingly innocuous expansion would, in effect, license an open-ended bleeding of the American battle away from Iraq and Afghanistan to any location in which such vaguely defined associates operate. The two present wars could become three, four, or five, and could shift from the Middle East to Africa, South Asia, or anywhere that a photo, say, of Osama bin Laden hung in the barracks.

But wait a minute. Doesn't the United States already attack/kill/maim/imprison/torture anybody anywhere who it believes is "associated with" named terrorists? Sure we do!

But wait a minute. For most of a decade, the US military has already operated against an amorphous, transnational terrorist enemy under the broadest possible reading of its 9/11 authorization. Drones, cruise missiles, special-ops, and mercenary forces have hit targets with impunity well beyond the officially acknowledged battle zones. The Obama administration, otherwise so different from its predecessor, is freelancing militarily, just as the Bush administration did.

So why is an expanded mandate needed now?

Though the language in the proposed legislation simply affirms what has become White House and Pentagon practice, more than policy is at stake. The law after 9/11 made an implicit claim to global force projection based on an emergency; the new legislation would explicitly reject any time or place limitations on that force. In other words, a seemingly subtle shift marks a movement from the exceptional to the threshold of normal. There is a word for the realm into which that threshold opens: The legislation is a step toward an open declaration of American empire.

The proposed change would simply make it official that the United States reserves its exclusive right to attack/kill/maim/imprison/torture anybody anywhere who it believes is "associated with" named terrorists. But what about this "open declaration" of American Empire?

For a time in the Bush era, officials and public intellectuals promoted the idea of American empire, declaring it the duty of the United States to maintain planet-wide dominance through military force for the sake of political order and economic well-being — not only of Americans but of the world. This virtuous purpose would make America, in a phrase of the historian Niall Ferguson, “an empire by invitation.” The arrival of terrorism as a mass threat made this hegemonic mission seem inevitable. At some point, the word “empire” fell out of fashion, even on the right...

Out of fashion? Not here at DOTE.

... Yet the structures and ideology — and bases — of world-wide dominion reproduced themselves, and soon enough the central assumption of empires embedded itself in American consciousness — the idea that the global rules of order apply to every nation except the one that enforces them.

By my reckoning, the advent of the National Security State (1947) under President Harry S. Truman marks the beginning of the Empire.

A fourth feature of a National Security State is its obsession with enemies. There are enemies of the state everywhere. Defending against external and/or internal enemies becomes a leading preoccupation of the state, a distorting factor in the economy, and a major source of national identity and purpose.

Carroll goes on to condemn American exceptionalism.

America’s war on terrorism, up to and including its climactic assault on the bin Laden compound, has lain bare this superpower double-standard. Washington is simply above the law.

What would Americans make of pilotless drone attacks coming in from Mexico to target, say, drug kingpins holed up in mansions in the hills above San Diego? After the 1979 bombing-murder of Lord Mountbatten, what would Americans have made of British commandos launching a raid in IRA-friendly New York to kill or capture the fugitive Provo chief responsible? No such interventions would be tolerated for a moment.

Why then does Washington sponsor their equivalents elsewhere? Because that’s what empires do.

Yes, that's what empires do. I don't often talk about this stuff. I take it for granted, and I assume my readers do, too. Is that a mistake? You tell me. It is remarkable how Americans have so effectively shielded themselves from the terrible crimes carried out in their name. It is as if Americans have a psychological disorder called dissociative amnesia in so far as they can't remember any of the details of those past crimes.

When W was attacking/killing/maiming/imprisoning/torturing "towel heads" after 9/11, liberals were outraged once the shock of the attack wore off. Where's the outrage now? Barack Obama, as if over-compensating for his liberal blackness, has been even more ruthless, even more assiduous, even more obsessed with enemies in pursuing the war on "Terrorism" all over the world.

The recent killing of Osama bin-Laden was definitely viewed as a feather in Obama's political cap. From community organizer to Great Warrior! Never mind that it took the all-powerful United States 10 years to kill that bastard. Remind me again why we're fighting a war in Afghanistan against the Taliban. (The original mission was to kill or capture bin-Laden.) Oh yeah, I remember now—the Taliban were and are "associated with" named terrorists.

You can't of course have a war on an abstract noun. As an exercise, try to come up with a definition of "terrorist organization" that includes al Qaeda but excludes the United States. It can be done, but not without making irrelevant distinctions (e.g. al Qaeda is not a nation-state).

Having attained great heights of common sense—"Washington is above the law"—Jim Carroll reveals his utter confusion at the end.

That the common good requires such exceptionalism has been so taken for granted as to not need acknowledgment, though now the Congress aims to convert informal understanding into official legislation. “Associates” beware! Bin Laden is gone, but the American war party rides high.

But is this the only way? Let’s grant that “invited” US imperialism is mainly benign (which requires leaving aside questions of unfair economic structures abroad, and dehumanizing effects of garrison culture at home). Let’s grant also that contemplated expansions of Pentagon belligerence may successfully defang terrorism (instead of sparking it).

American imperialism is mainly benign (if we ignore almost everything we know). Expanded belligerence may defang terrorism (instead of creating it). Having given away the store, Carroll arrives at his hard-hitting conclusion.

Even so, the more far-reaching consequence of 21st-century American empire will be the final destruction of authentic internationalism — nations bound by the power of agreed democratic law, cross-border systems of checks and balances, all abiding by the same rules, mutually enforced. The destruction, that is, of the only world with a hope of real peace and justice.

I've got news for you, Jim, and here it is: the American Empire has been in decline for 30 years. It is being destroyed from within. It's current need to indiscriminately strike out at named terrorists (properly defined) and their "associates" everywhere all the time is a sign of Imperial weakness. It is this very weakness, its powerful military, and its unaccountable, arrogant, power-crazed rulers that makes the United States very dangerous to any perceived enemy or threat to its waning economic power in the 21st century. That's what we need to worry about now.

As for your hopes for a world full of real peace and justice, I suggest you go to Disneyland.

Manufacturing — A Story Of America's Decline

If you were only able to read one story explaining America's decline, Michael A. Fletcher's In Rust Belt, manufacturers add jobs, but factory pay isn’t what it used to be is the one to look at. Yet, Fletcher's narrative, which appears in the Washington Post, purports to show that America is experiencing a "budding revival" in manufacturing, a conclusion which is at odds with reality. And as we shall see, economist Paul Krugman touts the recent increase in manufacturing jobs as indicating the success of America's weak dollar policy. From the Post—

NORTH CANTON, OHIO — More than 1,000 applicants began lining up this week outside a former Hoover vacuum plant here in the hopes of joining a surprising trend in this part of the nation’s manufacturing heartland: new jobs.

Come June, the plant will be churning out EdenPure space heaters, vacuums, air purifiers and other small appliances once made in China. The turnabout for this factory and scores of others across the long-suffering Rust Belt offers vivid evidence of a budding revival in American manufacturing that has been a key driver of the economic recovery.

The nation’s factories have added 250,000 jobs since the beginning of last year — about 13 percent of what was lost during the recent recession — marking the first sustained increase in manufacturing employment since 1997.

But the new hiring also reflects another emerging reality of U.S. manufacturing: Many of the jobs don’t pay anything close to what they used to. Assembly-line workers who will be making the EdenPure products under the auspices of Suarez Corp. Industries will start at $7.50 an hour.

That’s a far cry from the $20 an hour that most workers made with Hoover, which shifted its century-old production lines to Mexico and El Paso in 2007 after concluding that it was too expensive to make its products in the industrial Midwest.

Behind the recovery

The Rust Belt’s nascent recovery is being fueled by a host of factors, including a revitalized auto sector, innovations that have made workers more productive, and a weakened dollar, which makes American products more appealing for export...

To be fair, Fletcher has pointed out the main weaknesses of the "nascent recovery"—this is the first "sustained increase" in manufacturing jobs since 1977, and the jobs pay only $7.50 an hour. But what about these constant references to "the recovery"? Following good journalistic practice, Fletcher serves up this drivel—

The Rust Belt’s fortunes have been one of the bright spots of a mostly shaky recovery. Nationally, manufacturing output grew at an estimated annual rate of 9.1 percent in the first three months of the year, while the overall economy expanded by just 1.8 percent, according to Federal Reserve figures.

“Everybody had written off the manufacturing sector and the Rust Belt, but now the manufacturing sector is the shining star of the U.S. recovery,” said Mark J. Perry, a professor at the University of Michigan at Flint and a visiting scholar at the American Enterprise Institute.

The recovery has been a long time coming. The nation lost nearly 6 million factory jobs, almost a third of its total, between 2000 and 2009. Those losses came on top of a long slide that started in 1979, when the nation’s manufacturing workforce peaked at 19.5 million. Currently, the nation has 11.7 million manufacturing workers, according to the Labor Department.

And it's not merely a recovery. According to some, it's a renaissance in lousy low-paying jobs.

A ‘renaissance’

A recent report by the Boston Consulting Group predicted that the United States is on the verge of a “manufacturing renaissance” as labor costs increase sharply in China and the Chinese currency slowly increases in value.

Those forces are combining to make the United States “one of the cheapest locations for manufacturing in the developed world,” the report said — a prediction that is not universally embraced as good news.

“It’s not clear that the manufacturing jobs that are now growing are all that desirable,” said Susan R. Helper, an economist at Case Western Reserve University.

From The Atlantic's The Decline of the Manufacturing Job and the Rise of ... Something Else. See my post Gotta Love That Worker Productivity. 

It's a capitalist's wet dream. Look at America's extraordinary worker productivity! Those newly-employed Ohio workers will be cranking out EdenPure space heaters, vacuums and air purifiers at an astonishing rate, and all this for $7.50/hour. Naysayer Susan R. Helper has the temerity to say that these new jobs aren't all that desirable. How undesirable are these jobs? Well, gasoline goes for $3.75/gallon in Ohio right now, so for every hour you work, you can buy 2 gallons of gas (before deductions). Your 8-hour day should net you one fill-up at the Gas & Go, depending on the size of your gas tank. What a bargain!

Stuart Staniford, responding to Krugman, shows us the BLS manufacturing jobs data at his blog Early Warning.

BLS data for manufacturing employment, normalized with the civilian non-institutional population over age 20. Recession bars are shown in pale blue/grey. From Staniford: "You can see that this fraction has been declining since about 1970.  It's worst in recessions.  It used to recover somewhat between recessions, but since the 1980s it's tended to be flat or declining even during recoveries.  Krugman is quite right that it was worse in the 2000s than in the 1990s.  It's also true that its performance after the great recession is slightly better. However, it's only flat - it's not actually recovering."

So much for the "renaissance" in manufacturing jobs. Nevertheless, Paul Krugman is always delighted to demonstrate assert that stimulative government policies (emanating from the White House or the Fed) are making life better every day in every way. This is from his opinion piece Making Things In America—

Manufacturing, once America’s greatest strength, seemed to be in terminal decline.

But that may be changing. Manufacturing is one of the bright spots of a generally disappointing recovery, and there are signs — preliminary, but hopeful, nonetheless — that a sustained comeback may be under way.

And there’s something else you should know: If right-wing critics of efforts to rescue the economy had gotten their way, this comeback wouldn’t be happening.

[My note: Krugman's piece was published 2 days after Fletcher's Washington Post article. Was this purely coincidental? It's not clear, Krugman's article doesn't reference Fletcher's.]

Ah — there's the rub. Democrats are making the magic happen, and Paul loves Democrats. If we had listened to those Republican bastards, including Ron Paul, who wants to abolish the Fed, there wouldn't be any new manufacturing jobs paying a whopping $7.50 an hour. But Krugman also knows there is still a long way to go.

I don’t want to suggest that everything is wonderful about U.S. manufacturing. So far, the job gains are modest, and many new manufacturing jobs don’t offer good pay or benefits. The manufacturing revival isn’t going to make health reform unnecessary or obviate the need for a strong social safety net.

Still, better to have those jobs than none at all. Which brings me to those right-wing critics.

First, what’s driving the turnaround in our manufacturing trade? The main answer is that the U.S. dollar has fallen against other currencies, helping give U.S.-based manufacturing a cost advantage. A weaker dollar, it turns out, was just what U.S. industry needed.

Yet the Federal Reserve finds itself under intense pressure from the right to make the dollar stronger, not weaker...

So while we still have a deeply troubled economy, one piece of good news is that Americans are, once again, starting to actually make things. And we’re doing that thanks, in large part, to the fact that the Fed and the Obama administration ignored very bad advice from right-wingers — ideologues who still, in the face of all the evidence, claim to know something about creating prosperity.

[My note: Just the other week, Tim Geithner extolled America's strong dollar policy. See my post TIm Geithner Knows Diddly-Squat. Maybe Krugman and Geithner should meet up to get their story straight.]

Krugman lives in flatland, a 2-dimensional plane whose axes can be labeled Democrats (Good) and Republicans (Evil). And in his nimble mind, stimulus is best of all, so Bernanke is also Good. In flatland, we wouldn't have anything if Bernanke weren't debasing the dollar and Obama hadn't saved the General Motors, although Staniford's normalized data shows that we don't have anything anyway.

That leaves us with a weaker dollar, which has contributed to a large spike in energy & food costs and Americans paying more for imported goods. Thus newly hired workers in Ohio will make $7.50 an hour, but have to pay $3.75 for a gallon of gas. But for Krugman, it's better to have those minimum wage jobs than none at all. And why? Because the Democrats and the Fed ... uhmm ... did something, although it's not obvious what it is or whether we want it. It’s not clear that the manufacturing jobs that are now growing are all that desirable says Case Western economist Susan R. Helper.

Stuart Staniford made another graph, and let's end with that and a quote from Stuart.

If you were just to do the simplest thing and extrapolate the trend of the past 40 years, that suggests US manufacturing employment would reach zero some time in the 2030s.

"Of course, many things could intervene to prevent that: some kind of revolution in China, a collapse of the US dollar, a shift to protectionism in the US: these are just a few examples. But, absent a really big shift like that, I doubt this trend is going to turn around in the near future on account of moderate changes in the value of the dollar"

There you have it, a story of America's decline. The Manufacturing Rebound Is A Myth. Those vested in a failing, corrupt society will go to any lengths to pretend that everything is OK, or will be OK, even if they have to sell out American workers to do it.

Just ask Paul Krugman.