Category Archives: Economics

Why California Has the Nation’s Worst Poverty Rate, by Ryan McMaken

One thing governments are good at producing is poverty, and California has lots of government. From Ryan McMaken at mises.org:

Earlier this week, the LA Times reminded its readers that California has the highest poverty rate in the nation.

Specifically, when using the Census Bureau’s most recent” Supplemental Poverty Measure” (SPM), California clocks in with a poverty rate of 20 percent, which places it as worst in the nation.

To be sure, California is running quite closely with Florida and Louisiana, but we can certainly say that California is a top contender when it comes to poverty:

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This continues to be something of a black eye for California politicians who imagine themselves to be the enlightened elite of North America. The fact that one in five Californians is below this poverty line doesn’t exactly lend itself to crowing about the state’s success in its various wars on poverty.

Many conservative sites have seized on the information to say “I told you so” and claim this shows that “blue-state” policies fail. One should be careful with this, of course, since there are plenty of red states in the top ten as well. Moreover, some blue states, like Massachusetts, are doing moderately well by this measure:

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In the realm of political punditry,  though, it matters a great deal whether one is using the regular poverty measure, or the SPM. For one, in the regular poverty measure, California ranks better than Texas, and leftists love to use the standard poverty rate to talk about how truly awful Texas and other red states are. The Supplemental Poverty Measure allows Texans to talk about how awful California is.

If we’re going to use census data to guess the prevalence of low-income households, though, the SPM is greatly superior to the old poverty rate. There’s a reason, after all, that the Census Bureau developed it, and the Bureau has long warned that poverty rates using the old measure don’t make for good comparisons across state lines.

The old poverty measure was a far more crude measure that did not take local costs into account, did not include poverty-assistance income, and basically ignored what can be immense differences in the cost of living in different locations. Many commentators often love to note how the median household income in many red states are below the national average — but then conveniently ignore how low the cost of living is in those places.

To continue reading: Why California Has the Nation’s Worst Poverty Rate

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Contemplations on America and 4% GDP Growth, by Chris Hamilton

Sustained 4 percent GDP growth in the US isn’t going to happen. From Christ Hamilton at economica.blogspot.com:

Economic prognosticators (Jamie Dimon, among them) suggest that 4% GDP growth is likely and that economic good times have returned.  I haven’t a clue what they are smoking.  I’ll lay out how the US economy has grown ever more reliant on cheap debt to buy ever more intangible services creating a decelerating number of full time jobs among a population that is growing ever more slowly (the basis of a growing consumer base).  And that’s just scratching the surface.

To provide some context, the chart below shows the Federal Funds Rate (black shaded area) versus the annual change in federal debt (red), consumption (yellow), government consumption (blue), and private investment (white).  Noteworthy since the GFC is the surging annual change in consumption versus tame growth in government spending and decelerating private investment.  BTW, since ’81, a rising FFR % coupled with decelerating federal debt growth (as we now have) has resulted in declining private investment and imminent recession.

America the Service Economy:  Since 1960, consumption as a percentage of GDP has risen from 60% to nearly 70%, as of 2017.  However, the make up of the three components that comprise consumption has drastically changed (chart below).  Durable goods (those deemed to last 3+ years) has been steady at about 8% of GDP while non-durable goods has nearly fallen in half.  Conversely, services have risen from just more than a quarter of the total economy to nearly half of total GDP!  A service is a type of economic activity that is intangible, is not stored, and does not result in ownership.  A service is consumed at the point of sale.

So America is an economy where nearly half of all spending results in nothing tangible or durable to show for it…except more debt to be serviced?!?

To continue reading: Contemplations on America and 4% GDP Growth

Yes, But at What Cost? from Charles Hugh Smith

Debt can pump up an economy. Invariably, it also takes it down. From Charles Hugh Smith at oftwominds.com:

This is how our entire status quo maintains the illusion of normalcy: by avoiding a full accounting of the costs.
The economy’s going great–but at what cost? “Normalcy” has been restored, but at what cost? Profits are soaring, but at what cost? Our pain is being reduced–but at what cost?
The status quo delights in celebrating gains, but the costs required to generate those gains are ignored for one simple reason: the costs exceed the gains by a wide margin. As long as the costs can be hidden, diluted, minimized and rationalized, then phantom gains can be presented as real.
Exhibit One: the US public debt. If you borrow and blow enough money, it’s not too difficult to generate a bit of “growth”–but at what cost?
Exhibit Two: opioid deaths. One of the few metrics that’s climbing as fast as the national debt is the death rate from prescription and synthetic opioids:
Exhibit Three: student loan debt. Here’s a chart of debt that is federally originated but paid by individual students: the infamous student loan debt that has shot up over $1 trillion in a few years.
You see the point: the cost are skyrocketing but the gains are diminishing. The costs of maintaining the illusion of “normalcy”–for example, that going to college is “still affordable”– are soaring, while the gains of a college education are declining as credentials and diplomas are is oversupply. (What’s scarce are the real-world skillsets employers actually need.)
To continue reading: Yes, But at What Cost?

The Value Of Bitcoin Isn’t what most people think it is, by Chris Martenson

What is cryptocurrency worth? Good question. Chris Martenson tries to look at the question logically. From Martenson at peakprosperity.com:

So… in the past week, I’ve been asked for advice on Bitcoin by my brother-in-law, my local realtor, and close friends from as far away as Texas.

None of them cared to learn what it actually is. Or how it works. They just wanted to understand why suddenly so many folks they know are trying to buy Bitcoin hand over fist. And, of course, should they buy in now, too?

If you (or people you care about) have similar questions, this report is for you.

A Brave New World

Remember the scene from the movie Avatar, where the main character first explores the alien world of Pandora? I found that scene astonishing and beautiful. He’s encountering an entirely new and completely foreign ecosystem.  Every element is fascinating and wondrous, even the dangerous elements — yet it all still follows understandable rules.

Everything is involved in either gathering sunlight or eating something else that had. Every niche is filled. Every organism has its own strategy: some light up, some fly, some run, some crawl. As entirely alien as everything is, if you understand the basics of how organisms filled their niches on Earth, you have a great starting point for understanding of the rules of life on Pandora.

Similarly, a great way to begin to understand the new world opened up by Bitcoin (and the other cryptocurrencies) is to realize that it’s an ecosystem that, at its heart, maps neatly into the universe you already understand. A few examples: payments, identity, contracts, verification, and record keeping (ledgers).

As with any ecosystem in nature, a new organism will survive and flourish if and only if it’s more efficient and effective than the prior model. For example, nothing has displaced sharks in the past 425 million years because they’re extremely efficient in their niche. To displace them, a new ocean predator would have to come along that does what they do faster, better, and (energetically) cheaper.

So the operative questions we need to keep in mind when looking at the brave new world of digital currencies are: What problem(s) are they solving?, and, Are their solutions faster, better, and/or cheaper?

To continue reading: The Value Of Bitcoin Isn’t what most people think it is

 

Phillips Curve R.I.P. by Paul Craig Roberts

What supply-side economics is and isn’t. From Paul Craig Roberts at paulcraigroberts.com:

For a decade central banks have printed enormous quantities of new money. The excuse is to stimulate the economy by reviving inflation. However, the money has, for the most part, driven up the prices of financial assets instead of consumer and producer prices. The result has been a massive increase in the inequality of income, wealth, and opportunity.

The quantitative easing policy followed by central banks is based on belief in an economic relationship between inflation and GDP growth—the Phillips curve—that supply-side economics disproved during the Reagan administration. The belief in the Phillips curve persists, because supply-side economics was misrepresented by the financial media and neoliberal junk economics.

The fact that something as straightforward and well explained as supply-side economics can be misrepresented for 35 years should give us all pause. When successive chairmen of the Federal Reserve and other central banks have no correct idea what supply-side economics is, how can they formulate a workable monetary policy? They cannot.

The Phillips Curve is the modern day version of the Unicorn. People believe in it, but no one can find it.  The Fed has been searching for it for a decade and the Bank of Japan for two decades.  So has Wall Street. 

Central banks’ excuse for their massive injections of liquidity in the 21st century is that they are striving to stimulate the 2% rate of inflation that they think is the requirement for sustained rises in wages and GDP.  In a total contradiction of the Phillips Curve, in Japan massive doses of central bank liquidity have resulted in the collapse of both consumer and financial asset prices.  In the US the result has been a large increase in stock averages propelled by unrealistic P/E ratios and financial speculation resulting in Tesla’s capitalization at times exceeding that of General Motors.

In effect pursuit of the Phillips Curve has become a policy of ensuring financial stability of over-sized banks by continually injecting massive amounts of liquidity. The result is greater financial instability.  The Fed is now confronted with a stock market disconnected from corporate profits and consumer disposable income, and with insurance companies and pension funds that have been unable for a decade to balance equity portfolios with interest bearing debt instruments.  Crisis is everywhere in the air. What to do?

To continue reading: Phillips Curve R.I.P.

Simple wisdom from one of the most famous people to go broke, by Simon Black

Mark Twain was a great writer and a lousy investor. From Simon Black at sovereignman.com:

In the late 1800s towards the end of his life, Mark Twain wrote one of his greatest observations of humanity:

“When you remember we are all mad, the mysteries disappear and life stands explained.”

Twain’s quote was primarily a commentary on himself.

A lot of people don’t know this, but Mark Twain went bankrupt late in life.

His enormous fame as an author had brought him substantial wealth. But Twain squandered it all on countless business and investment blunders.

Twain’s publishing company, for example, racked up record sales of its 11 volume “Library of American Literature”.

The problem, however, was that the books cost him $25 to produce… but he only collected $3 up front from customers.

The more volumes he sold, the more money his company lost.

Twain started borrowing heavily to keep his business afloat, eventually mortgaging his home and taking substantial personal loans from wealthy friends.

But Twain was unable to indebt himself back into prosperity, and the company was run into the ground.

Simultaneously Twain made some hilariously boneheaded investments.

He chose NOT to invest in Alexander Graham Bell’s telephone (even though he boasted one of the country’s first telephones in his own home).

Instead Twain dumped more than $40,000 (nearly $1.5 million today) in a failed technology that went bust.

Twain invested in another technology that was supposed to revolutionize steam engines. Per the terms of the deal, Twain paid the inventor a stipend of $35 per week.

Twain wrote in his journal,

He visited me every few days to report progress and I early noticed by his breath and gain that he was spending 36 dollars a week on whisky, and I could never figure out where he got the other dollar.

Twain lost money in the stock market too, famously buying shares of Oregon Transcontinental Railroad at $78 per share, ignoring the stock bubble when it hit $98, and ultimately selling at $12.

Obviously there’s nothing wrong with buying stocks or even making high-risk speculations.

But Twain had an extraordinary knack for massively overextending himself… betting way too much on deals with excessive risk.

To continue reading: Simple wisdom from one of the most famous people to go broke

Behind Korea, Iran and Russia Tensions: The Lurking Financial War, by Alastair Crooke

Several countries who do not consider themselves friends of the US are moving away from US economic and financial dominance. That’s fueling tensions. From Alastair Crooke at strategic-culture.org:

What have the tensions between the US and North Korea, Iran and Russia in common? Answer: It is that they are components to a wider financial war. Russia and Iran (together with China) happen to be the three key players shaping a huge (almost half the global population) alternative currency zone. The North Korean issue is important as it potentially may precipitate the US – depending on events – towards a more aggressive policy toward China (whether out of anger at Chinese hesitations over Korea, or as part and parcel of the US Administration’s desire to clip China’s trading wings).

The US has embarked on a project to restore America’s economic primacy through suppressing its main trade competitors (through quasi-protectionism), and in the military context to ensure America’s continued political dominance. The US ‘America First’National Security Strategy made it plain: China and Russia are America’s ‘revisionist’ adversaries, and the US must and intends to win in this competition. The sub-text is that potential main rivals must be reminded of their ‘place’ in the global order. This part is clear and quite explicit, but what is left unsaid is that America is staking all on the dollar’s global, reserve currency status being maintained, for without it, President Trump’s aims are unlikely to be delivered. The dollar status is crucial – precisely because of what has occurred in the wake of the Great Financial crisis – the explosion of further debt.

But here is a paradox: how is it that a Presidential Candidate who promised less military belligerence, less foreign intervention, and no western cultural-identity imposition, has, in the space of one year, become, as President, a hawk in respect to Korea and Iran.  What changed in his thinking?  The course being pursued by both states was well-known, and has offered no sudden surprise (though North Korea’s progress may have proved quantitatively more rapid than, perhaps, US Intelligence was expecting: i.e. instead of 2020 – 2021, North Korea may have achieved its weapons objective in 2018 – some two years or so earlier that estimated)?  But essentially Korea’s desire to be accepted as a nuclear weapon state is nothing new.

To continue reading: Behind Korea, Iran and Russia Tensions: The Lurking Financial War