People tend to forget their expectations 25 years ago, so that if you ask them are you better off today they shrug and say yes but just barely. It isn’t too many years ago that the average american family owned one car only, and never imagined a european or island vacation. I never flew in a plane till after college. Today you are hard pressed to find a one car family, or a household no matter how poor that doesn’t have a flat screen tv, or a family cell phone plan. I paid my way through school, today we not only pay their way but pay to send them away to school. Nice country.
MWGAugust 22, 2009 at 10:56 pm
I live in awe everyday when I make a call on my iPhone, surf the web on my laptop, travel from Phoenix to Seattle for under $200 to visit my parents, ect, ect. I don’t even need to see the numbers. CLEARLY, I live a hellofalot better than my parents did when they were my age.
AnonymousAugust 23, 2009 at 12:06 am
Wow… well that does seem impressive…. now I’ll actually go and research the numbers… see you in a bit…
MWGAugust 23, 2009 at 12:22 am
No need. Just cut and paste the last thread where you mindlessly tried to argue our standard of living in the US is indeed falling.
AnonymousAugust 23, 2009 at 1:29 am
For starters;
Historical Median home price (current dollars)
1980 64,600
2006 246,500 382% increase
Historical median household income (current dollars)
1980 17,710
2006 48,201 272% increase
AnonymousAugust 23, 2009 at 1:42 am
Wow, Muirgeo! How disingenuous can you get?
Housing prices during a housing bubble as your metric?
You can thank your precious government for that one.
That’s it? That’s all you could come up with? Just when I think you can’t be as economically stupid as everyone here thinks, you go and make ME look dumb by proving me wrong.
The results obviously matter based on how you define inflation. Using current dollars it seems clear that median income has not kept pace with the most significant purchase a family might want to make.
The current measures used under estimate inflation and thus the results in the chart are spurious. But don’t worry about it I’m guessing you don’t really want an honest data driven, fact based and referenced discussion.
AnonymousAugust 23, 2009 at 1:57 am
Median home price in the 2nd quarter of this year is 182k.
Ever read the disclaimer on your link???????
“The material appearing on this website is based on data and information from sources we believe to be accurate and reliable. However, the material is not guaranteed as to accuracy nor does it purport to be complete.”
AnonymousAugust 23, 2009 at 6:06 am
The period in question is from 1980 to 2006. Why are you wanting to change the end date?
Either way are you claiming things for the middle class have improved between 2006 and 2nd quarter of 2009.
NikoAugust 23, 2009 at 6:54 am
Call me crazy, but I think the housing price declined a lot more between 2006 – 2009 than did median household income, putting the statistics in a closer range.
Also, I’m not really one to care what the prices for housing are. What does that prove? That Americans aren’t getting wealthier because houses are more expensive? Really?
AnonymousAugust 23, 2009 at 2:03 am
You’re so full of it, dude.
Housing.
Bubble.
NathanAugust 23, 2009 at 3:43 am
Any stats on house size? I bet today’s are much bigger on average. Comparing $/sq.ft. rather than $/house is a much better metric.
MWGAugust 23, 2009 at 8:58 am
Even that’s incomplete as it doesn’t take into consideration advances in technology that are part of the home.
AnonymousAugust 23, 2009 at 5:44 am
And what you don’t understand is that the housing bubble WAS the result of income inequality.
AnonymousAugust 23, 2009 at 7:38 am
Repeating muirpidity #1, are we?
I have faith in you, though. I think you have several thousand muirpidities in you. If you just (don’t) think hard enough.
AnonymousAugust 23, 2009 at 2:26 pm
Would you mind enlightening me how exactly income inequality inflated the housing bubble? I’m curious.
AnonymousAugust 23, 2009 at 4:07 am
Here‘s an interesting lecture on this subject by Harvard’s Elizabeth Warren. Familiar (and well established) claims include:
The rise in household income is all about women entering the workforce. Male income is flat, but more households have women earning wages, so the rise is all about more income earners in the household, not more income per earner.
Despite the rise in income, saving has plummeted while debt has risen.
Despite the rising income, plummeting saving and rising debt, many common expenditures (on food, clothing, autos, appliances) have fallen, because the real costs have fallen. Auto expenditures per household have risen, because households have more autos, but the real expenditure per auto has fallen.
The big expenditure increases then are autos (but from owning more autos, not paying more per auto), housing, health care, child care and taxes.
The rising child care expenditure is the single largest rise that Warren discusses, and it’s obviously related to women entering the workforce.
More autos per household is also related to women entering the workforce but to a lesser extent, since even non-wage-earning women might want a second car (and families with teenage kids have even more cars).
That leaves housing, health care and taxes. What accounts for these rising expenditures? Obviously, the burgeoning state accounts for taxes, and we’re learning how various state policies inflated housing, and state policies also heavily influence health care costs. Practically the entire over 65 population has nationalized health care, and their health care expenditures per capita are 3-4 times greater than the rest of the population.
Warren doesn’t account for the costs precisely, but education expenditures have also risen dramatically since the seventies (the period she covers), largely because far more people attend postsecondary schools while the cost of postsecondary education has risen. This rise also has a lot to do with state policies.
So muirgeo has a point here, but it’s not necessarily the point he thinks he’s making.
MarcusAugust 23, 2009 at 4:49 am
“The rise in household income is all about women entering the workforce. Male income is flat, but more households have women earning wages, so the rise is all about more income earners in the household, not more income per earner.”
The untold story in that is an economy which expanded to employ all those additional workers.
A few months ago somebody pointed me to a website with old Sears and JC Penny catalogs from the 70′s. I started comparing old catalog prices to their website prices by converting 1970′s prices into median wage hours of that time and website prices into median wage hours today. As it turned out, a modern day median wage worker has as much as 3 times the buying power at Sears than a median wage worker from the 70′s.
If I had the time, I’d like to do a more thorough analysis. It rather seems that the areas of the market where we’ve had the most gains are in areas which are the least regulated by government. And the areas where we’ve had the least gains and maybe even fell behind are areas of the market which are most heavily regulated (ie. health care, education).
AnonymousAugust 23, 2009 at 4:57 am
A sufficiently free economy always expands to employ all workers. More precisely, free people employ themselves and trade their produce with one another. This story should be so prosaic that it doesn’t need telling, but of course, economies aren’t really so free.
Three times the buying power is an exaggeration (you’re cherry picking some price), but if you watch the lecture by Warren above, she discusses the remarkable fall in the real cost of (and corresponding household expenditure on) food, clothing, household appliances and automobiles since the seventies. Sears Catalog expenditures don’t account for a much higher cost of living. The higher costs are just what you say, plus housing, childcare and taxes.
AnonymousAugust 23, 2009 at 5:29 am
Paradoxically, when people have higher incomes because of greater specialization, there will be more unemployment. When you’re looking for a job in your speciality, there may not be an opening right at the time you happen to want a job. Whereas, of course, you can always get a job doing something unpleasant and low-paying.
AnonymousAugust 23, 2009 at 4:13 pm
“Paradoxically, when people have higher incomes because of greater specialization, there will be more unemployment.”
That almost certainly is not generally true, and likely not even usually true. Demand for the specialized jobs typically precedes the pursuit of them. You didn’t have hundreds of people 200 years ago training for clean room silicon work in preparation for when those jobs would be created.
Maybe you are thinking that longer training is required for a specialized than a nonspecialized job. But even then, the training period is not usually considered one of unemployment.
MarcusAugust 23, 2009 at 5:39 am
With all due respect, I was not cherry picking. There were, of course, many things where we did not have such gains. There were also things in which we had greater gains than that. But I haven’t done a detailed analysis. In many areas, it’s hard to make a one to one comparison.
For example, today you can get a decent treadmill for a few hundred dollars. In the 70′s Sears catalog there were no treadmills but for a few hundred dollars they did have a ‘running machine’ which was just an unmotorized belt placed at an angle which you ran on. Now how do you compare that?
I guestimated at around 3 times because overall the prices in nominal dollars in the catalogs and online are roughly about the same and median wage today is around 3-times higher today than it was then (in nominal dollars).
For example, you could buy your kid a 20″ dirt bike for about $100 in the 70′s. Today you can still buy your kid a 20″ dirt bike for about $100.
AnonymousAugust 23, 2009 at 6:00 am
“A sufficiently free economy always expands to employ all workers. ” marinbrock
And your evidence for that claim is where?
AnonymousAugust 23, 2009 at 12:12 pm
It’s obviously a theoretical assertion. I made a list of empirical assertions, and you’ve ignored every one of them. Some of the empirical assertions even support your point, but you still ignore them. That’s why this game is such a bore.
AnonymousAugust 23, 2009 at 5:26 am
Is muirgeo a guy now? I can never keep track. I know that he used to claim to be a girl, but truth and accuracy don’t seem to be his forte.
AnonymousAugust 23, 2009 at 5:05 pm
Are you a victim of Stockholm syndrome or a Media Mind-be-numbed Drone or an inculcated Ayn Rand Member or maybe you are a member of The Family to which Mark Stanford, John Ensign belong… I can never keep track.
AnonymousAugust 23, 2009 at 6:07 am
Martin,
You don’t think changes in inflation measurements effect the data???
AnonymousAugust 23, 2009 at 12:20 pm
I nowhere suggest that inflation measurements don’t affect the data. The figures in Weaver’s lecture are adjusted for inflation. She makes this point emphatically. I only asserted that a three-fold reduction in real costs in general is an exaggeration.
Weaver finds substantial reductions since the seventies in expenditures on food, clothing, autos and household appliances, but not a three-fold reduction. She gives the figures.
Maybe the real cost of a 20″ dirt bike at Sears has fallen three-fold, but I doubt that real costs generally, even at Sears, have fallen three-fold. I’ll need to see a careful analysis before I’ll believe a three-fold reduction over this period. I’ve been alive the whole time.
Weaver does give the largest drop in home appliances though. The real cost of appliances (adjusted for inflation) fell 42% according to her figures. A three-fold drop is 66%, so three-fold is not an outrageous exaggeration for some products at Sears, but I doubt the catalog average fits this description.
MarcusAugust 23, 2009 at 1:38 pm
Again, the biggest problem is finding one to one comparisons. So many things we take for granted today didn’t exist then.
I don’t remember where I got the link from (it might even been from here) but here’s the link:
Maybe the gains haven’t been exactly 3 times but they certainly have been substantial.
AnonymousAugust 23, 2009 at 7:40 am
So muirgeo has a point here…
If he wears a hat, no one will notice.
AnonymousAugust 23, 2009 at 5:57 am
Ok, so it’s worked out until now. Or has it? What happened to those millions of union workers made unemployed because Rust-Belt industries went belly up in the late 70s to present? Surely they were not re-trained to do something else. So what the hell happened to them?
Also regarding the middle class in general – they are fatter and unhealthier then ever. How is that an improvement from 1980? Cheap electronic gadgets don’t automatically mean a better standard of living.
NikoAugust 23, 2009 at 7:06 am
What union workers? They’re just so few and far between these days, you know.
As for what the mid-west is doing, I don’t know. Re-tooling in some states, still clinging to the past in others, and slowly but surely dying off into nothing without much hope in Michigan.
But for those – like Michigan – who still don’t get what progress means, maybe they should do what their ancestors did when low-skilled and no-skilled jobs pop-up in other countries. Move there.
AnonymousAugust 24, 2009 at 1:57 am
“Surely they were not re-trained to do something else.”
What basis is there for this assumption? And why view “re-training” as something that happens to the workers from outside? Isn’t it possible that they themselves decided to learn a new skill which hadn’t lost its economic value?
What you’ve overlooked is
1. Many workers have re-trained. In Pittsburgh, where I’ve lived most of my life, there are many middle-aged men and women going to school for jobs in the medical care industry for example.
2. Many more have moved to areas outside the Rust Belt, where new jobs have been created. Almost every major city in the U.S. has at least one “Steeler Bar”* where Pittsburgh sports fans congregate – and this suggests that either the Steelers, Pirates, and Penguins have an unheard of ability to attract natives of other cities, or that Pittsburghers have moved away and retained their economic loyalties.
3. Many of the job cuts here have been through attrition(retirements/buyouts) rather than outright.
I think this analysis would look much different if the incomes were adjusted for inflation.
AnonymousAugust 23, 2009 at 12:45 pm
The incomes in Horwitz’ link to the Census Bureau (below) are adjusted for inflation. Inflation adjustment over a long period is a black art, but the figures seem reasonable enough.
The problem is:
Median household income rises 17% over the period ’80-’06.
The first link is Horwitz’ link. The second links the same source.
So Horwitz’ link basically shows women entering the workforce in all households, across the income spectrum, during this period. At least, this theory accounts for the finding. Do we accurately describe this change with “middle class disappears to join the upper class”? Historically, did a wage earning wife/mother indicate higher status or lower status?
Furthermore, median income drops between ’00 and ’06, both for households and for individual males, and it presumably has dropped even further since, possibly erasing the 6% gain for individual males entirely.
The trend that Horwitz’ cites for the entire period reverses in this decade, by his own account, but he says nothing about it. In Horwitz’ own chart, since ’00, the percentage of households in the bottom three income categories rises while the percentage in higher income categories continues to fall, before the recession. His own link shows this recent pattern, but he says nothing, even though denying this pattern is the whole point of his blog post. Isn’t this omission a little disingenuous?
Also, Horwitz writes, “Throw on top of this the fact that most everything people buy costs less in real terms,” but his figures are already adjusted for inflation, so he’s not throwing this fact on top. He’s counting it twice.
AnonymousAugust 24, 2009 at 6:39 am
Actually, it would look exactly the same.
AnonymousAugust 23, 2009 at 2:33 pm
Screw all the theory. It invariably ignores all the U.C. that come along. A study terminating in 2006 may be factual and actual for the period evaluated. However, some powerful and bleak things have happened since 2006.
The idiot electorate supported an increase in the criminal politicians who are unconstitutionally legislating our country into bankruptcy.
I question the rationality of the belief (over any period) that a fiat money system will perpetuate the value of the paper dollar. It has depreciated 98% over the last hundred years and is well on its way to becoming worthless. Nobody seems to remember it took a wheelbarrow full of francs to buy a loaf of bread in 1946. So it is soon to be here in the good ole USA.
For those of us who live on investments, life is bleak and getting bleaker. Our portfolios are down by over 33% and our investments are yielding half the interest of 20 years ago.
Let Mr. Horowitz update his study to today and I expect a completely different conclusion
AnonymousAugust 23, 2009 at 3:28 pm
There’s always work. If you can’t work, because of age or for some other reason, you need assistance, but I’m not losing sleep over your deflated assets and falling interest payments.
I don’t expect hyperinflation in the U.S., because too many wage earners lack the leverage to raise wages. Common consumer prices can’t rise much faster than common wages, and U.S. monetary authorities will withdraw liquidity if common prices rise rapidly.
This withdrawal raises interest rates on the fiat debt that you presumably dislike (or maybe not), but it raises the rate by depressing the price of bonds, so if you already hold the bonds, you don’t gain. You’ll see interest rates rise, but shares of your fixed-income mutual fund will fall.
The volume of this fiat debt is rising rapidly, and that’s the problem, because monetary authorities will recirculate it to absorb the liquidity. Recirculating the “securities” requires higher rents, higher taxes to pay the interest on Treasury securities, higher mortgage payments, higher prices for goods produced by indebted corporations protected from competition, not the corporations producing your food and clothing so much as corporations producing less competitively, like your electric utility.
These higher rents don’t necessarily correspond to higher “inflation” though, because official measures of “inflation” don’t reflect these costs as much. Monetary authorities know how to game the inflation number.
I do fear a period of stagflation on the scale of the seventies and a continuing drift toward European levels of chronic unemployment along with European-style maintenance programs and all the lost productivity that goes along with it. We’re headed in this direction anyway, just because the baby boom is headed for our 65-grave income and health maintenance programs.
We’ve figured out that genuine investment (like raising children) is much riskier than handing bills of credit to Uncle Sam and expecting him to raise taxes on everyone else’s investments, so being older and more risk averse, we invest less and seek rents more.
We’re also figuring out that diversification doesn’t solve this problem (the insecurity of free market capitalism), because the distribution of real investment yields is fat tailed.
To be clear here, I want the insecurity instead of the rents, but we must confront the reality of this insecurity and the realistic, rent-minimizing remedies.
AnonymousAugust 23, 2009 at 4:14 pm
I don’t expect you or anybody else outside of my family to care two hoots about my financial security. Certainly our profligate government doesn’t care whether I sink or swim.
With regard to interest rates, in a word, you are WRONG. Interest rates are managed and controlled just the same as the amount of fiat money. You seem to forget, or don’t know, that bonds are callable. Accordingly, 20 years ago 10% muni bonds were quite common. Today, that is a scant 5% for reasonably secure bonds.
Your paragraph 4. Just not so. You write as if thats a free market out there. It is all regulated and particularly that electric utility whose service is diminishing because it recoups some of its profits by reallocating money from maintenance. With the housing market collapsing, for instance, mortgage payments are not going up. Rather, to encourage the market, mortgage rates are down. Of course, the big banks are carefully managing the money supply wending their way between public opinion and government intervention. The sea is so confused major mistakes are made daily.
Your last three paragraphs are just playing with words. All you need to study is Hitler or Roosevelt to see what the current legislation and policies are doing. Monetary authorities do not have a workable model. Betting on them will be as successful as throwing your money on the red at the Roulette table. You can just about bet on unemployment for the foreseeable future. Stagflation, oops, take a trip to the grocery store. On your final paragraph, I can’t even dope out what you said. Try saying our country is doomed to third world status and it is happening faster than one can imagine. Jefferson’s fear of government has come to pass and we are well on our way to a footnote in a future history book discussing the rise and fall of the United States.
AnonymousAugust 23, 2009 at 5:24 pm
Bonds can be callable, and that’s fine with me, but even bonds that aren’t callable or aren’t called fall in price when interest rates rise. Taxpayers finance your muni bonds, so I’m happy for them to disappear altogether. Don’t want the “security” of a corporative state. Thanks but no thanks.
If you want to buy a bond from a (necessarily risky) competitive, for profit enterprise in a free economy, that’s fine with me, but I categorically oppose every dollar of interest and principal on your state “securities”. They’re nothing but entitlement to tax revenue. We might as well discuss Social Security benefits.
I don’t write that it’s a free market out there. I explicitly write the opposite above.
Mortgage interest payments aren’t rising now, but that’s what’ll happen when the Fed withdraws liquidity by selling off its growing store of mortgage backed securities in the inflationary scenario. I’m not defending the organizational effects of this central planning, but it’s the reality.
The stimulus package directly targets electric utilities with cash offers, but utilities must match the offers, and they may match the offers with credit that central bankers are eager to extend them, because many utilities have pricing leverage subject largely to state regulators. People don’t cut their electricity consumption much when budgets are tight.
I agree that we’re following the lead of Hitler and Roosevelt, but we are doing that, so I expect the consequences. I’m not betting that monetary authorities will get it all “right”. I’m only betting that they’ll do what they’re entitled to do, and I don’t see hyperinflation following.
Has the stagflation already started? Not according to official inflation statistics. We only have the stag at this point, not the flation, according to official statistics. We even have a little deflation, officially. That’s all I’ve said.
The CPI-U is down 2.1 percent in the last twelve months. Food is up a percent, but energy is down dramatically from the incredible heights of last year, so the official policies give monetary authorities room to do what they want to do, build a floor under inflated housing prices by extending credit to finance the necessarily higher wages.
AnonymousAugust 23, 2009 at 7:37 pm
1. You assume trading in bonds. I don’t know the statistics but I invest in bonds for income and hold them till maturity. My point: /At maturity they redeem at face value, hence no fluctuation except for the degradation due to inflation, ie fiat money. Taxpayers do not subsidize muni bonds( I know, you used the word finance). They approve bond issues and then pay them off. With your type of financing the county commission would still be meeting in a log cabin. And let’s not get into SS. I am and have been opposed to it from the start. SS is a product of Roosevelt and the Nazi applications.
Free market? No such thing even though the entreprenours try within the constraints of government.
To whom is the Fed going to sell its growing store of mortgage backed securities? With a free hand on the throttle the Fed just keeps printing paper dollars. Since each roll of the press devalues the dollar, it will take more to buy the same amount. That is a misleading thought that prices are going up. The worth is staying the same.
Utilities are tightly regulated. With a growing population from uncontrolled immigration, energy usage is increasing as it has world wide since the notion of centralized enegy supplies began. Individuals do cut back when money is tight, but there are more users so we don’t see demand ebbing. Like municipalities, the utilities have not the funds to finance now what will be used in the future. They borrow and they pay back. Since they are regulated and since the people pay the bills, I don’t see much difference between a utility financing and a municipality financing.
I don’t know who your money authorities are, but please stand corrected. Based on history they have never gotten it right. Also they do what they can get away withm not what they are entitled to. I refer you to the accepted use of entitled, namely freedom to act in a manner to better yourself while not harming your neighbor. Again with the decreasing value of the dollar, inflation will continue and we will call it hyperinflation when the dollar is valueless.
Stagflation. For years I have pondered where statisticians get their numbers. 1%, 2%, 3% annualized inflation while the price of milk, for instance, went up 10% along with everything else. In short, if you trust the federal statistics, then you’ll be proud to go to Vegas and share in the fantastic payoffs promised by the casino owners. I, on the other hand, believe the politicians aren’t above lying, all the way up to the president.
Deflation? Oil by the barrel is down from $147 to $73. Seems like everybody forgot it was around $30 a barrel before the ripoff started. The only deflation around is cost reductions due to improvements in technology, mass production, and improved labor efficiency. That is not deflation but the natural consequence of success in commerce.
The only official policy around is for the money people to continue screwing the public. These folks have their backs to the wall aand are making one last gasp to restore us to the ridiculous monetary policy pre 2006. In Zimbabwe the people are actually dying of starvation, but not Mugambe or what ever that aging relic is called. Pelosi, Reid, Obama et al are living like kings and queens at the public’s expense and the liberal voters don’t care. Their arrogance is beyond the ability of words to describe. They think we are stupid and they are correct. We are getting the government we deserve, however fret not. It is not going to last and we are headed to a fate as dire as Zimbabwe.
Build a floor under inflated housing prices by financing higher wages? Are you sure you are not related to Obama? This multitrillion dollar wild spending spree is the ten thousand pound straw that is going to break the camel’s back.
We are doomed unless the younger people read The Declaration of Independence and clean house in DC.
AnonymousAugust 23, 2009 at 11:14 pm
At maturity they redeem at face value, hence no fluctuation except for the degradation due to inflation, ie fiat money.
There’s also a risk of default, but if you’re buying entitlement to tax revenue, maybe you don’t account much for it.
Taxpayers do not subsidize muni bonds( I know, you used the word finance). They approve bond issues and then pay them off.
I’ve never approved a bond issue, so that’s just a lot of collectivist groupthink.
With your type of financing the county commission would still be meeting in a log cabin.
With my type of financing, the county commission might not be meeting at all, but if their meetings are so valuable, they might realize this value somehow without entitling you to tax revenue. Your entitlement to tax revenue is not inevitable. That’s only your rationalization. Regardless of the merits of fiat debt, let’s at least be honest enough to call it what it is.
And let’s not get into SS. I am and have been opposed to it from the start. SS is a product of Roosevelt and the Nazi applications.
Opposed to it or not, Social Security is entitlement to tomorrow’s tax revenue that I purchase by paying statesmen today, like your muni bonds.
Free market? No such thing even though the entreprenours try within the constraints of government.
Right. So let’s not pretend that your entitlement to tax revenue is anything else.
To whom is the Fed going to sell its growing store of mortgage backed securities?
To the same people buying muni bonds? You? Me? The New York State Employees pension fund? The Chinese garment worker expecting to collect rents from the U.S. in his old age, because he has only one child in China to support him? The demand is practically inexhaustible.
That is a misleading thought that prices are going up. The worth is staying the same.
Price is not equivalent to worth.
You assume that dollars introduced into circulation always remain in circulation, but the assumption is false. The Fed lends money into circulation either directly or by purchasing securities. When the Fed’s debtors repay loans or the Fed sells securities purchased earlier, money leaves circulation. On balance, monetary authorities typically fuel inflation, so prices rise continually over time. The real value of assets need not rise. Only a numerical label for this value rises.
The statesman’s bond is a promise to raise tax revenue and transfer it to the bondholder. It’s as valuable as the statesmen’s capacity to command real value from his subjects. Your county commissioners are not exceptional.
Utilities are tightly regulated. With a growing population from uncontrolled immigration, energy usage is increasing as it has world wide since the notion of centralized enegy supplies began.
Immigration is irrelevant here. Utilities typically have captive markets. I effectively have only one option, unless I move to some other community where I also have only one option, so only my ability and willingness to pay constrains the utility’s price. No competitive pressure keeps the price any lower. Where this sort of monopoly exists, creditors will extend credit as long as the monopolist can raise his price, regardless of any new value added. This price increase is a rent, not a productive quid pro quo between a supplier and a consumer of energy.
Individuals do cut back when money is tight, but there are more users so we don’t see demand ebbing.
Demand for electricity is less elastic than demand for other goods. The demand need not be completely inelastic. If it is less elastic than demand for other goods, and if a utility does not compete to provide the good efficiently, then the price is higher than it would be if demand were more elastic and the utility did compete with more efficient providers. The rent is the value of forcible interference with other possible organization, not of any more valuable product.
Like municipalities, the utilities have not the funds to finance now what will be used in the future.
Financing can enable future production or not. If I will pay more regardless of any value added, then value added is irrelevant. That a utility sells you a bond is no evidence that it provides value to anyone but you. The sale presumably signals some value to the seller as well, but the bond needn’t provide any value to consumers of electricity, because they aren’t the seller.
They borrow and they pay back. Since they are regulated and since the people pay the bills, I don’t see much difference between a utility financing and a municipality financing.
In truly free capital markets, they borrow, invest and pay back if the investment pays off. Since real investments are experimental, the payoff is uncertain. That you see no difference between this financing and entitlement to tax revenue only demonstrates how thoroughly corporatist our “market economy” has already become.
I don’t know who your money authorities are, but please stand corrected.
My monetary authorities presumably are the same as yours.
Based on history they have never gotten it right.
I’ve never said anything about anyone getting it “right”, so I don’t know who you think you’re correcting here. You’re more concerned with statesmen raising sufficient tax revenue to pay you ten percent interest on some bond they’ve sold you. That’s easy enough. Just threaten to shoot me and my children. We’ll pay it if we can. If we can’t, we might start shooting back. I doubt that we’ve reached this point, but it could happen.
Also they do what they can get away withm not what they are entitled to.
Same difference. They typically entitle themselves to what they do before they do it. If you think that Ben Bernanke is violating the Federal Reserve Act, I suppose you’re mistaken.
I refer you to the accepted use of entitled, namely freedom to act in a manner to better yourself while not harming your neighbor.
Accepted by whom? I don’t find this usage in the dictionary, and the men with “entitlement” on their lips have far more diverse motives. You for example want statesmen to compel me and my children to transfer our produce to you at a more appealing rate. Ten percent of some price you pay the statesman, annually, was your figure. You like this figure better that five percent, and why wouldn’t you?
Again with the decreasing value of the dollar, inflation will continue and we will call it hyperinflation when the dollar is valueless.
The dollar will not be valueless any time soon. Prices will rise, but they’ve risen since the day I was born. Prices have roughly quadrupled in my lifetime, but the dollar has not become valueless. I still accept it almost exclusively for my services, and so does everyone trading with me. We only write larger numbers on price tags, including pay checks, for equivalent goods. This inflation can continue indefinitely. At some point, we’ll spend ten dollar bills as we now spend one dollar bills. So what?
That’s not a defense of any monetary policy. It’s just how things really are.
Stagflation. For years I have pondered where statisticians get their numbers. 1%, 2%, 3% annualized inflation while the price of milk, for instance, went up 10% along with everything else.
The CPI-U is not only the price of milk, and the Commerce department compiles it, not the Fed, but I’ve said nothing about trusting anyone. The official statistic is what it is. If you want to know how it’s measured, that’s public information too. Of course, it’s subject to political gaming.
Deflation? Oil by the barrel is down from $147 to $73. Seems like everybody forgot it was around $30 a barrel before the ripoff started.
I haven’t forgotten. I only said that the CPI-U is down two percent over the last twelve months, because it is.
The only deflation around is cost reductions due to improvements in technology, mass production, and improved labor efficiency. That is not deflation but the natural consequence of success in commerce.
No. “Deflation” denotes a general fall in prices, or a fall in some average price, not cost reductions due to productivity improvements. Deflation might or might not reflect productivity improvements.
The only official policy around is for the money people to continue screwing the public. These folks have their backs to the wall aand are making one last gasp to restore us to the ridiculous monetary policy pre 2006.
You can imagine this gasp as their last if it makes you feel better. I’m not betting on it, and apparently neither are you. You’re worried about the price of milk and the interest rate on your munis. If you were serious, you’d invest in gold and sea rations and bury both in your back yard.
In Zimbabwe the people are actually dying of starvation, but not Mugambe or what ever that aging relic is called.
We aren’t discussing Zimbabwe here. We aren’t about to see hyperinflation in dollar denominated assets. Inflation, seventies style, is quite bad enough. We don’t need to cry “wolf” so loudly that no one ever takes us seriously.
It is not going to last and we are headed to a fate as dire as Zimbabwe.
I’ll wager a week’s income, my current income vs. yours, that the CPI-U never increases more than 100% in any year in the next ten. Should be easy money for you, and you needn’t pay the county commission to confiscate it from me.
Build a floor under inflated housing prices by financing higher wages? Are you sure you are not related to Obama?
No. The system worked this way long before Obama came along. I’m only describing it here.
This multitrillion dollar wild spending spree is the ten thousand pound straw that is going to break the camel’s back.
The demand for entitlement to tax revenue (and rents more generally) is exploding, because baby boomers (around the world) want to exchange growth for income. Statesmen can at least pretend to satisfy this demand while padding their own nests, so they will. They’ll need to raise taxes a lot for the entitlements to mean much ultimately, but that’s a problem for tomorrow’s statesmen.
We are doomed unless the younger people read The Declaration of Independence and clean house in DC.
Precisely, how am I supposed to clean house in D.C.? March up there with my pitchfork? Why didn’t you clean house in D.C., old man?
Henry BlankettAugust 24, 2009 at 11:05 pm
Over the past ten years, how does the rate of any average household net income compare to the rate of inflation over the same time period?
Over the past ten years, what percentage of debt has the average household accumulated as compared to that of any previous time in American history?
The answer to those two very simple questions will help explain the avalanche of horselaughs generated – both at you and Steve Horwitz – should this article be read by more of the general public.
AnonymousAugust 25, 2009 at 4:05 am
So let me see, if instead of money, your employer or the government provided you directly with all of your consumption needs–car, house, food, clothing, education, health care, utilities, toys, repairs, entertainment, etc.–you would disparage your net income as being “zero”?
Don’t worry. My horse is too polite to laugh as those less bright than he.
AnonymousAugust 23, 2009 at 5:01 pm
Because as the rich got richer and extracted all the wealth they could from the middle class via wages freezes, tax liabilty transfers ect… they had to find other ways to extract money from their paupers. They did so by getting all the rules on credit loosened so they could run a credit driven economy where the creditors prospered and the debtors wealth and income where destroyed . The creme de la creme was MBS and CBO’s.
And getting a lot of foolish middle class individuals to equate defending extreme wealth with defending liberty was also a neat trick they pulled off to help with ongoing wealth transfer.
“During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?”
I’ve always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly — that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.
However, let’s give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed’s four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect.
If we succeed in avoiding recession, this will mark a big win for let- bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come.
“KRUGMAN: I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE).
DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she — or I should say he and she, can they bring back this economy?
KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don’t know”
“KRUGMAN: I’m a little depressed. You know, inventories, probably that’s over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven’t fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It’s not a happy picture.”
“Consumers, who already have low savings and high debt, probably can’t contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery…. But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates — and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1…. Sooner or later, of course, investors will realize that 2001 isn’t 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place.
“Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.
In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package”
“The good news about the U.S. economy is that it fell into recession, but it didn’t fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed’s dramatic interest rate cuts helped keep housing strong even as business investment plunged.”
“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” -MIT trained economist & Nobel Laureate Paul Krugman in 2002.
|>> [The Rich] did so by getting all the rules on credit loosened so they could run a credit driven economy where the creditors prospered and the debtors wealth and income where destroyed .
So let me get this straight: The Rich loosened credit rules so that they can take on undue risk with their money. Thus, The Rich effectively gave away their money to The Poor(*). This somehow resulted in The Rich getting richer, and The Poor getting poorer.
When you look up, do you see sky or ground?
(*) When you go bankrupt, you still got all the benefits of the money you borrowed. The lender is the one who loses out on the deal.
AnonymousAugust 23, 2009 at 9:28 pm
Some of the empirical assertions even support your point, but you still ignore them.
He doesn’t ignore them. He can’t comprehend them. Yasafi’s “brain” does not compute anything more complicated than, “see spot run”; “Democrats = Good, Republicans = Eeeevil”; or, “His Holiness is the Divine Prophet: Algore I. Those who disagree with His Holiness are doo-doo heads.”
AnonymousAugust 24, 2009 at 12:58 am
What’s your response to all of those PK quotes, Muirgeo?
sandreAugust 24, 2009 at 4:38 am
I expect no response from him. Truth, facts don’t matter to him. He is an extreme political partisan.
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People tend to forget their expectations 25 years ago, so that if you ask them are you better off today they shrug and say yes but just barely. It isn’t too many years ago that the average american family owned one car only, and never imagined a european or island vacation. I never flew in a plane till after college. Today you are hard pressed to find a one car family, or a household no matter how poor that doesn’t have a flat screen tv, or a family cell phone plan. I paid my way through school, today we not only pay their way but pay to send them away to school. Nice country.
I live in awe everyday when I make a call on my iPhone, surf the web on my laptop, travel from Phoenix to Seattle for under $200 to visit my parents, ect, ect. I don’t even need to see the numbers. CLEARLY, I live a hellofalot better than my parents did when they were my age.
Wow… well that does seem impressive…. now I’ll actually go and research the numbers… see you in a bit…
No need. Just cut and paste the last thread where you mindlessly tried to argue our standard of living in the US is indeed falling.
For starters;
Historical Median home price (current dollars)
1980 64,600
2006 246,500 382% increase
Historical median household income (current dollars)
1980 17,710
2006 48,201 272% increase
Wow, Muirgeo! How disingenuous can you get?
Housing prices during a housing bubble as your metric?
You can thank your precious government for that one.
Oops… my sources;
http://www.census.gov/const/pricerega.pdf
http://www.census.gov/hhes/www/income/histinc/h06AR.html
That’s it? That’s all you could come up with? Just when I think you can’t be as economically stupid as everyone here thinks, you go and make ME look dumb by proving me wrong.
So what?
The results obviously matter based on how you define inflation. Using current dollars it seems clear that median income has not kept pace with the most significant purchase a family might want to make.
http://www.shadowstats.com/alternate_data
The current measures used under estimate inflation and thus the results in the chart are spurious. But don’t worry about it I’m guessing you don’t really want an honest data driven, fact based and referenced discussion.
Median home price in the 2nd quarter of this year is 182k.
Ever read the disclaimer on your link???????
“The material appearing on this website is based on data and information from sources we believe to be accurate and reliable. However, the material is not guaranteed as to accuracy nor does it purport to be complete.”
The period in question is from 1980 to 2006. Why are you wanting to change the end date?
Either way are you claiming things for the middle class have improved between 2006 and 2nd quarter of 2009.
Call me crazy, but I think the housing price declined a lot more between 2006 – 2009 than did median household income, putting the statistics in a closer range.
Also, I’m not really one to care what the prices for housing are. What does that prove? That Americans aren’t getting wealthier because houses are more expensive? Really?
You’re so full of it, dude.
Housing.
Bubble.
Any stats on house size? I bet today’s are much bigger on average. Comparing $/sq.ft. rather than $/house is a much better metric.
Even that’s incomplete as it doesn’t take into consideration advances in technology that are part of the home.
And what you don’t understand is that the housing bubble WAS the result of income inequality.
Repeating muirpidity #1, are we?
I have faith in you, though. I think you have several thousand muirpidities in you. If you just (don’t) think hard enough.
Would you mind enlightening me how exactly income inequality inflated the housing bubble? I’m curious.
Here‘s an interesting lecture on this subject by Harvard’s Elizabeth Warren. Familiar (and well established) claims include:
The rise in household income is all about women entering the workforce. Male income is flat, but more households have women earning wages, so the rise is all about more income earners in the household, not more income per earner.
Despite the rise in income, saving has plummeted while debt has risen.
Despite the rising income, plummeting saving and rising debt, many common expenditures (on food, clothing, autos, appliances) have fallen, because the real costs have fallen. Auto expenditures per household have risen, because households have more autos, but the real expenditure per auto has fallen.
The big expenditure increases then are autos (but from owning more autos, not paying more per auto), housing, health care, child care and taxes.
The rising child care expenditure is the single largest rise that Warren discusses, and it’s obviously related to women entering the workforce.
More autos per household is also related to women entering the workforce but to a lesser extent, since even non-wage-earning women might want a second car (and families with teenage kids have even more cars).
That leaves housing, health care and taxes. What accounts for these rising expenditures? Obviously, the burgeoning state accounts for taxes, and we’re learning how various state policies inflated housing, and state policies also heavily influence health care costs. Practically the entire over 65 population has nationalized health care, and their health care expenditures per capita are 3-4 times greater than the rest of the population.
Warren doesn’t account for the costs precisely, but education expenditures have also risen dramatically since the seventies (the period she covers), largely because far more people attend postsecondary schools while the cost of postsecondary education has risen. This rise also has a lot to do with state policies.
So muirgeo has a point here, but it’s not necessarily the point he thinks he’s making.
“The rise in household income is all about women entering the workforce. Male income is flat, but more households have women earning wages, so the rise is all about more income earners in the household, not more income per earner.”
The untold story in that is an economy which expanded to employ all those additional workers.
A few months ago somebody pointed me to a website with old Sears and JC Penny catalogs from the 70′s. I started comparing old catalog prices to their website prices by converting 1970′s prices into median wage hours of that time and website prices into median wage hours today. As it turned out, a modern day median wage worker has as much as 3 times the buying power at Sears than a median wage worker from the 70′s.
If I had the time, I’d like to do a more thorough analysis. It rather seems that the areas of the market where we’ve had the most gains are in areas which are the least regulated by government. And the areas where we’ve had the least gains and maybe even fell behind are areas of the market which are most heavily regulated (ie. health care, education).
A sufficiently free economy always expands to employ all workers. More precisely, free people employ themselves and trade their produce with one another. This story should be so prosaic that it doesn’t need telling, but of course, economies aren’t really so free.
Three times the buying power is an exaggeration (you’re cherry picking some price), but if you watch the lecture by Warren above, she discusses the remarkable fall in the real cost of (and corresponding household expenditure on) food, clothing, household appliances and automobiles since the seventies. Sears Catalog expenditures don’t account for a much higher cost of living. The higher costs are just what you say, plus housing, childcare and taxes.
Paradoxically, when people have higher incomes because of greater specialization, there will be more unemployment. When you’re looking for a job in your speciality, there may not be an opening right at the time you happen to want a job. Whereas, of course, you can always get a job doing something unpleasant and low-paying.
“Paradoxically, when people have higher incomes because of greater specialization, there will be more unemployment.”
That almost certainly is not generally true, and likely not even usually true. Demand for the specialized jobs typically precedes the pursuit of them. You didn’t have hundreds of people 200 years ago training for clean room silicon work in preparation for when those jobs would be created.
Maybe you are thinking that longer training is required for a specialized than a nonspecialized job. But even then, the training period is not usually considered one of unemployment.
With all due respect, I was not cherry picking. There were, of course, many things where we did not have such gains. There were also things in which we had greater gains than that. But I haven’t done a detailed analysis. In many areas, it’s hard to make a one to one comparison.
For example, today you can get a decent treadmill for a few hundred dollars. In the 70′s Sears catalog there were no treadmills but for a few hundred dollars they did have a ‘running machine’ which was just an unmotorized belt placed at an angle which you ran on. Now how do you compare that?
I guestimated at around 3 times because overall the prices in nominal dollars in the catalogs and online are roughly about the same and median wage today is around 3-times higher today than it was then (in nominal dollars).
For example, you could buy your kid a 20″ dirt bike for about $100 in the 70′s. Today you can still buy your kid a 20″ dirt bike for about $100.
“A sufficiently free economy always expands to employ all workers. ” marinbrock
And your evidence for that claim is where?
It’s obviously a theoretical assertion. I made a list of empirical assertions, and you’ve ignored every one of them. Some of the empirical assertions even support your point, but you still ignore them. That’s why this game is such a bore.
Is muirgeo a guy now? I can never keep track. I know that he used to claim to be a girl, but truth and accuracy don’t seem to be his forte.
Are you a victim of Stockholm syndrome or a Media Mind-be-numbed Drone or an inculcated Ayn Rand Member or maybe you are a member of The Family to which Mark Stanford, John Ensign belong… I can never keep track.
Martin,
You don’t think changes in inflation measurements effect the data???
I nowhere suggest that inflation measurements don’t affect the data. The figures in Weaver’s lecture are adjusted for inflation. She makes this point emphatically. I only asserted that a three-fold reduction in real costs in general is an exaggeration.
Weaver finds substantial reductions since the seventies in expenditures on food, clothing, autos and household appliances, but not a three-fold reduction. She gives the figures.
Maybe the real cost of a 20″ dirt bike at Sears has fallen three-fold, but I doubt that real costs generally, even at Sears, have fallen three-fold. I’ll need to see a careful analysis before I’ll believe a three-fold reduction over this period. I’ve been alive the whole time.
Weaver does give the largest drop in home appliances though. The real cost of appliances (adjusted for inflation) fell 42% according to her figures. A three-fold drop is 66%, so three-fold is not an outrageous exaggeration for some products at Sears, but I doubt the catalog average fits this description.
Again, the biggest problem is finding one to one comparisons. So many things we take for granted today didn’t exist then.
I don’t remember where I got the link from (it might even been from here) but here’s the link:
http://www.wishbookweb.com/
Maybe the gains haven’t been exactly 3 times but they certainly have been substantial.
So muirgeo has a point here…
If he wears a hat, no one will notice.
Ok, so it’s worked out until now. Or has it? What happened to those millions of union workers made unemployed because Rust-Belt industries went belly up in the late 70s to present? Surely they were not re-trained to do something else. So what the hell happened to them?
Also regarding the middle class in general – they are fatter and unhealthier then ever. How is that an improvement from 1980? Cheap electronic gadgets don’t automatically mean a better standard of living.
What union workers? They’re just so few and far between these days, you know.
As for what the mid-west is doing, I don’t know. Re-tooling in some states, still clinging to the past in others, and slowly but surely dying off into nothing without much hope in Michigan.
But for those – like Michigan – who still don’t get what progress means, maybe they should do what their ancestors did when low-skilled and no-skilled jobs pop-up in other countries. Move there.
“Surely they were not re-trained to do something else.”
What basis is there for this assumption? And why view “re-training” as something that happens to the workers from outside? Isn’t it possible that they themselves decided to learn a new skill which hadn’t lost its economic value?
What you’ve overlooked is
1. Many workers have re-trained. In Pittsburgh, where I’ve lived most of my life, there are many middle-aged men and women going to school for jobs in the medical care industry for example.
2. Many more have moved to areas outside the Rust Belt, where new jobs have been created. Almost every major city in the U.S. has at least one “Steeler Bar”* where Pittsburgh sports fans congregate – and this suggests that either the Steelers, Pirates, and Penguins have an unheard of ability to attract natives of other cities, or that Pittsburghers have moved away and retained their economic loyalties.
3. Many of the job cuts here have been through attrition(retirements/buyouts) rather than outright.
*This can be verifed at http://www.steelerbars.com/
I think this analysis would look much different if the incomes were adjusted for inflation.
The incomes in Horwitz’ link to the Census Bureau (below) are adjusted for inflation. Inflation adjustment over a long period is a black art, but the figures seem reasonable enough.
The problem is:
Median household income rises 17% over the period ’80-’06.
http://www.census.gov/compendia/statab/tables/09s0668.pdf
Median income of an individual male rises only 6% over the same period.
http://www.census.gov/compendia/statab/tables/09s0679.pdf
The first link is Horwitz’ link. The second links the same source.
So Horwitz’ link basically shows women entering the workforce in all households, across the income spectrum, during this period. At least, this theory accounts for the finding. Do we accurately describe this change with “middle class disappears to join the upper class”? Historically, did a wage earning wife/mother indicate higher status or lower status?
Furthermore, median income drops between ’00 and ’06, both for households and for individual males, and it presumably has dropped even further since, possibly erasing the 6% gain for individual males entirely.
The trend that Horwitz’ cites for the entire period reverses in this decade, by his own account, but he says nothing about it. In Horwitz’ own chart, since ’00, the percentage of households in the bottom three income categories rises while the percentage in higher income categories continues to fall, before the recession. His own link shows this recent pattern, but he says nothing, even though denying this pattern is the whole point of his blog post. Isn’t this omission a little disingenuous?
Also, Horwitz writes, “Throw on top of this the fact that most everything people buy costs less in real terms,” but his figures are already adjusted for inflation, so he’s not throwing this fact on top. He’s counting it twice.
Actually, it would look exactly the same.
Screw all the theory. It invariably ignores all the U.C. that come along. A study terminating in 2006 may be factual and actual for the period evaluated. However, some powerful and bleak things have happened since 2006.
The idiot electorate supported an increase in the criminal politicians who are unconstitutionally legislating our country into bankruptcy.
I question the rationality of the belief (over any period) that a fiat money system will perpetuate the value of the paper dollar. It has depreciated 98% over the last hundred years and is well on its way to becoming worthless. Nobody seems to remember it took a wheelbarrow full of francs to buy a loaf of bread in 1946. So it is soon to be here in the good ole USA.
For those of us who live on investments, life is bleak and getting bleaker. Our portfolios are down by over 33% and our investments are yielding half the interest of 20 years ago.
Let Mr. Horowitz update his study to today and I expect a completely different conclusion
There’s always work. If you can’t work, because of age or for some other reason, you need assistance, but I’m not losing sleep over your deflated assets and falling interest payments.
I don’t expect hyperinflation in the U.S., because too many wage earners lack the leverage to raise wages. Common consumer prices can’t rise much faster than common wages, and U.S. monetary authorities will withdraw liquidity if common prices rise rapidly.
This withdrawal raises interest rates on the fiat debt that you presumably dislike (or maybe not), but it raises the rate by depressing the price of bonds, so if you already hold the bonds, you don’t gain. You’ll see interest rates rise, but shares of your fixed-income mutual fund will fall.
The volume of this fiat debt is rising rapidly, and that’s the problem, because monetary authorities will recirculate it to absorb the liquidity. Recirculating the “securities” requires higher rents, higher taxes to pay the interest on Treasury securities, higher mortgage payments, higher prices for goods produced by indebted corporations protected from competition, not the corporations producing your food and clothing so much as corporations producing less competitively, like your electric utility.
These higher rents don’t necessarily correspond to higher “inflation” though, because official measures of “inflation” don’t reflect these costs as much. Monetary authorities know how to game the inflation number.
I do fear a period of stagflation on the scale of the seventies and a continuing drift toward European levels of chronic unemployment along with European-style maintenance programs and all the lost productivity that goes along with it. We’re headed in this direction anyway, just because the baby boom is headed for our 65-grave income and health maintenance programs.
We’ve figured out that genuine investment (like raising children) is much riskier than handing bills of credit to Uncle Sam and expecting him to raise taxes on everyone else’s investments, so being older and more risk averse, we invest less and seek rents more.
We’re also figuring out that diversification doesn’t solve this problem (the insecurity of free market capitalism), because the distribution of real investment yields is fat tailed.
To be clear here, I want the insecurity instead of the rents, but we must confront the reality of this insecurity and the realistic, rent-minimizing remedies.
I don’t expect you or anybody else outside of my family to care two hoots about my financial security. Certainly our profligate government doesn’t care whether I sink or swim.
With regard to interest rates, in a word, you are WRONG. Interest rates are managed and controlled just the same as the amount of fiat money. You seem to forget, or don’t know, that bonds are callable. Accordingly, 20 years ago 10% muni bonds were quite common. Today, that is a scant 5% for reasonably secure bonds.
Your paragraph 4. Just not so. You write as if thats a free market out there. It is all regulated and particularly that electric utility whose service is diminishing because it recoups some of its profits by reallocating money from maintenance. With the housing market collapsing, for instance, mortgage payments are not going up. Rather, to encourage the market, mortgage rates are down. Of course, the big banks are carefully managing the money supply wending their way between public opinion and government intervention. The sea is so confused major mistakes are made daily.
Your last three paragraphs are just playing with words. All you need to study is Hitler or Roosevelt to see what the current legislation and policies are doing. Monetary authorities do not have a workable model. Betting on them will be as successful as throwing your money on the red at the Roulette table. You can just about bet on unemployment for the foreseeable future. Stagflation, oops, take a trip to the grocery store. On your final paragraph, I can’t even dope out what you said. Try saying our country is doomed to third world status and it is happening faster than one can imagine. Jefferson’s fear of government has come to pass and we are well on our way to a footnote in a future history book discussing the rise and fall of the United States.
Bonds can be callable, and that’s fine with me, but even bonds that aren’t callable or aren’t called fall in price when interest rates rise. Taxpayers finance your muni bonds, so I’m happy for them to disappear altogether. Don’t want the “security” of a corporative state. Thanks but no thanks.
If you want to buy a bond from a (necessarily risky) competitive, for profit enterprise in a free economy, that’s fine with me, but I categorically oppose every dollar of interest and principal on your state “securities”. They’re nothing but entitlement to tax revenue. We might as well discuss Social Security benefits.
I don’t write that it’s a free market out there. I explicitly write the opposite above.
Mortgage interest payments aren’t rising now, but that’s what’ll happen when the Fed withdraws liquidity by selling off its growing store of mortgage backed securities in the inflationary scenario. I’m not defending the organizational effects of this central planning, but it’s the reality.
The stimulus package directly targets electric utilities with cash offers, but utilities must match the offers, and they may match the offers with credit that central bankers are eager to extend them, because many utilities have pricing leverage subject largely to state regulators. People don’t cut their electricity consumption much when budgets are tight.
I agree that we’re following the lead of Hitler and Roosevelt, but we are doing that, so I expect the consequences. I’m not betting that monetary authorities will get it all “right”. I’m only betting that they’ll do what they’re entitled to do, and I don’t see hyperinflation following.
Has the stagflation already started? Not according to official inflation statistics. We only have the stag at this point, not the flation, according to official statistics. We even have a little deflation, officially. That’s all I’ve said.
The CPI-U is down 2.1 percent in the last twelve months. Food is up a percent, but energy is down dramatically from the incredible heights of last year, so the official policies give monetary authorities room to do what they want to do, build a floor under inflated housing prices by extending credit to finance the necessarily higher wages.
1. You assume trading in bonds. I don’t know the statistics but I invest in bonds for income and hold them till maturity. My point: /At maturity they redeem at face value, hence no fluctuation except for the degradation due to inflation, ie fiat money. Taxpayers do not subsidize muni bonds( I know, you used the word finance). They approve bond issues and then pay them off. With your type of financing the county commission would still be meeting in a log cabin. And let’s not get into SS. I am and have been opposed to it from the start. SS is a product of Roosevelt and the Nazi applications.
Free market? No such thing even though the entreprenours try within the constraints of government.
To whom is the Fed going to sell its growing store of mortgage backed securities? With a free hand on the throttle the Fed just keeps printing paper dollars. Since each roll of the press devalues the dollar, it will take more to buy the same amount. That is a misleading thought that prices are going up. The worth is staying the same.
Utilities are tightly regulated. With a growing population from uncontrolled immigration, energy usage is increasing as it has world wide since the notion of centralized enegy supplies began. Individuals do cut back when money is tight, but there are more users so we don’t see demand ebbing. Like municipalities, the utilities have not the funds to finance now what will be used in the future. They borrow and they pay back. Since they are regulated and since the people pay the bills, I don’t see much difference between a utility financing and a municipality financing.
I don’t know who your money authorities are, but please stand corrected. Based on history they have never gotten it right. Also they do what they can get away withm not what they are entitled to. I refer you to the accepted use of entitled, namely freedom to act in a manner to better yourself while not harming your neighbor. Again with the decreasing value of the dollar, inflation will continue and we will call it hyperinflation when the dollar is valueless.
Stagflation. For years I have pondered where statisticians get their numbers. 1%, 2%, 3% annualized inflation while the price of milk, for instance, went up 10% along with everything else. In short, if you trust the federal statistics, then you’ll be proud to go to Vegas and share in the fantastic payoffs promised by the casino owners. I, on the other hand, believe the politicians aren’t above lying, all the way up to the president.
Deflation? Oil by the barrel is down from $147 to $73. Seems like everybody forgot it was around $30 a barrel before the ripoff started. The only deflation around is cost reductions due to improvements in technology, mass production, and improved labor efficiency. That is not deflation but the natural consequence of success in commerce.
The only official policy around is for the money people to continue screwing the public. These folks have their backs to the wall aand are making one last gasp to restore us to the ridiculous monetary policy pre 2006. In Zimbabwe the people are actually dying of starvation, but not Mugambe or what ever that aging relic is called. Pelosi, Reid, Obama et al are living like kings and queens at the public’s expense and the liberal voters don’t care. Their arrogance is beyond the ability of words to describe. They think we are stupid and they are correct. We are getting the government we deserve, however fret not. It is not going to last and we are headed to a fate as dire as Zimbabwe.
Build a floor under inflated housing prices by financing higher wages? Are you sure you are not related to Obama? This multitrillion dollar wild spending spree is the ten thousand pound straw that is going to break the camel’s back.
We are doomed unless the younger people read The Declaration of Independence and clean house in DC.
There’s also a risk of default, but if you’re buying entitlement to tax revenue, maybe you don’t account much for it.
I’ve never approved a bond issue, so that’s just a lot of collectivist groupthink.
With my type of financing, the county commission might not be meeting at all, but if their meetings are so valuable, they might realize this value somehow without entitling you to tax revenue. Your entitlement to tax revenue is not inevitable. That’s only your rationalization. Regardless of the merits of fiat debt, let’s at least be honest enough to call it what it is.
Opposed to it or not, Social Security is entitlement to tomorrow’s tax revenue that I purchase by paying statesmen today, like your muni bonds.
Right. So let’s not pretend that your entitlement to tax revenue is anything else.
To the same people buying muni bonds? You? Me? The New York State Employees pension fund? The Chinese garment worker expecting to collect rents from the U.S. in his old age, because he has only one child in China to support him? The demand is practically inexhaustible.
Price is not equivalent to worth.
You assume that dollars introduced into circulation always remain in circulation, but the assumption is false. The Fed lends money into circulation either directly or by purchasing securities. When the Fed’s debtors repay loans or the Fed sells securities purchased earlier, money leaves circulation. On balance, monetary authorities typically fuel inflation, so prices rise continually over time. The real value of assets need not rise. Only a numerical label for this value rises.
The statesman’s bond is a promise to raise tax revenue and transfer it to the bondholder. It’s as valuable as the statesmen’s capacity to command real value from his subjects. Your county commissioners are not exceptional.
Immigration is irrelevant here. Utilities typically have captive markets. I effectively have only one option, unless I move to some other community where I also have only one option, so only my ability and willingness to pay constrains the utility’s price. No competitive pressure keeps the price any lower. Where this sort of monopoly exists, creditors will extend credit as long as the monopolist can raise his price, regardless of any new value added. This price increase is a rent, not a productive quid pro quo between a supplier and a consumer of energy.
Demand for electricity is less elastic than demand for other goods. The demand need not be completely inelastic. If it is less elastic than demand for other goods, and if a utility does not compete to provide the good efficiently, then the price is higher than it would be if demand were more elastic and the utility did compete with more efficient providers. The rent is the value of forcible interference with other possible organization, not of any more valuable product.
Financing can enable future production or not. If I will pay more regardless of any value added, then value added is irrelevant. That a utility sells you a bond is no evidence that it provides value to anyone but you. The sale presumably signals some value to the seller as well, but the bond needn’t provide any value to consumers of electricity, because they aren’t the seller.
In truly free capital markets, they borrow, invest and pay back if the investment pays off. Since real investments are experimental, the payoff is uncertain. That you see no difference between this financing and entitlement to tax revenue only demonstrates how thoroughly corporatist our “market economy” has already become.
My monetary authorities presumably are the same as yours.
I’ve never said anything about anyone getting it “right”, so I don’t know who you think you’re correcting here. You’re more concerned with statesmen raising sufficient tax revenue to pay you ten percent interest on some bond they’ve sold you. That’s easy enough. Just threaten to shoot me and my children. We’ll pay it if we can. If we can’t, we might start shooting back. I doubt that we’ve reached this point, but it could happen.
Same difference. They typically entitle themselves to what they do before they do it. If you think that Ben Bernanke is violating the Federal Reserve Act, I suppose you’re mistaken.
Accepted by whom? I don’t find this usage in the dictionary, and the men with “entitlement” on their lips have far more diverse motives. You for example want statesmen to compel me and my children to transfer our produce to you at a more appealing rate. Ten percent of some price you pay the statesman, annually, was your figure. You like this figure better that five percent, and why wouldn’t you?
The dollar will not be valueless any time soon. Prices will rise, but they’ve risen since the day I was born. Prices have roughly quadrupled in my lifetime, but the dollar has not become valueless. I still accept it almost exclusively for my services, and so does everyone trading with me. We only write larger numbers on price tags, including pay checks, for equivalent goods. This inflation can continue indefinitely. At some point, we’ll spend ten dollar bills as we now spend one dollar bills. So what?
That’s not a defense of any monetary policy. It’s just how things really are.
The CPI-U is not only the price of milk, and the Commerce department compiles it, not the Fed, but I’ve said nothing about trusting anyone. The official statistic is what it is. If you want to know how it’s measured, that’s public information too. Of course, it’s subject to political gaming.
I haven’t forgotten. I only said that the CPI-U is down two percent over the last twelve months, because it is.
No. “Deflation” denotes a general fall in prices, or a fall in some average price, not cost reductions due to productivity improvements. Deflation might or might not reflect productivity improvements.
You can imagine this gasp as their last if it makes you feel better. I’m not betting on it, and apparently neither are you. You’re worried about the price of milk and the interest rate on your munis. If you were serious, you’d invest in gold and sea rations and bury both in your back yard.
We aren’t discussing Zimbabwe here. We aren’t about to see hyperinflation in dollar denominated assets. Inflation, seventies style, is quite bad enough. We don’t need to cry “wolf” so loudly that no one ever takes us seriously.
I’ll wager a week’s income, my current income vs. yours, that the CPI-U never increases more than 100% in any year in the next ten. Should be easy money for you, and you needn’t pay the county commission to confiscate it from me.
No. The system worked this way long before Obama came along. I’m only describing it here.
The demand for entitlement to tax revenue (and rents more generally) is exploding, because baby boomers (around the world) want to exchange growth for income. Statesmen can at least pretend to satisfy this demand while padding their own nests, so they will. They’ll need to raise taxes a lot for the entitlements to mean much ultimately, but that’s a problem for tomorrow’s statesmen.
Precisely, how am I supposed to clean house in D.C.? March up there with my pitchfork? Why didn’t you clean house in D.C., old man?
Over the past ten years, how does the rate of any average household net income compare to the rate of inflation over the same time period?
Over the past ten years, what percentage of debt has the average household accumulated as compared to that of any previous time in American history?
The answer to those two very simple questions will help explain the avalanche of horselaughs generated – both at you and Steve Horwitz – should this article be read by more of the general public.
So let me see, if instead of money, your employer or the government provided you directly with all of your consumption needs–car, house, food, clothing, education, health care, utilities, toys, repairs, entertainment, etc.–you would disparage your net income as being “zero”?
Don’t worry. My horse is too polite to laugh as those less bright than he.
Because as the rich got richer and extracted all the wealth they could from the middle class via wages freezes, tax liabilty transfers ect… they had to find other ways to extract money from their paupers. They did so by getting all the rules on credit loosened so they could run a credit driven economy where the creditors prospered and the debtors wealth and income where destroyed . The creme de la creme was MBS and CBO’s.
And getting a lot of foolish middle class individuals to equate defending extreme wealth with defending liberty was also a neat trick they pulled off to help with ongoing wealth transfer.
He likes to cherry pick the date.
German Interview, undated
http://www.pkarchive.org/global/welt.html
“During phases of weak growth there are always those who say that lower interest rates will not help. They overlook the fact that low interest rates act through several channels. For instance, more housing is built, which expands the building sector. You must ask the opposite question: why in the world shouldn’t you lower interest rates?”
May 2, 2001
http://www.pkarchive.org/column/5201.html
I’ve always favored the let-bygones-be-bygones view over the crime-and-punishment view. That is, I’ve always believed that a speculative bubble need not lead to a recession, as long as interest rates are cut quickly enough to stimulate alternative investments. But I had to face the fact that speculative bubbles usually are followed by recessions. My excuse has been that this was because the policy makers moved too slowly — that central banks were typically too slow to cut interest rates in the face of a burst bubble, giving the downturn time to build up a lot of momentum. That was why I, like many others, was frustrated at the smallish cut at the last Federal Open Market Committee meeting: I was pretty sure that Alan Greenspan had the tools to prevent a disastrous recession, but worried that he might be getting behind the curve.
However, let’s give credit where credit is due: Mr. Greenspan has cut rates since then. And while some of us may have been urging him to move even faster, the Fed’s four interest-rate cuts since the slowdown became apparent represent an unusually aggressive response by historical standards. It’s still not clear that Mr. Greenspan has caught up with the curve — let’s have at least one more rate cut, please — but the interest-rate cuts do, cross your fingers, seem to be having an effect.
If we succeed in avoiding recession, this will mark a big win for let- bygones-be-bygones, and a big loss for crime-and-punishment. And that will be very good news not just for this business cycle, but for business cycles to come.
July 18, 2001
http://www.pkarchive.org/economy/ML071801.html
“KRUGMAN: I think frankly it’s got to be — business investment is not going to be the driving force in this recovery. It has to come from things like housing, things that have not been (UNINTELLIGIBLE).
DOBBS: We see, Paul, housing at near record levels, we see automobile purchases near record levels. The consumer is still very much in this economy. Can he or she — or I should say he and she, can they bring back this economy?
KRUGMAN: Well, as far as the arithmetic goes, yes, it is possible. Will the Fed cut interest rates enough? Will long-term rates fall enough to get the consumer, get the housing sector there in time? We don’t know”
August 8^th 2001
http://www.pkarchive.org/economy/ML082201.html
“KRUGMAN: I’m a little depressed. You know, inventories, probably that’s over, the inventory slump. But you look at the things that could drive a recovery, business investment, nothing happening. Housing, long-term rates haven’t fallen enough to produce a boom there. The trade balance is going to get worst before it gets better because the dollar is still very strong. It’s not a happy picture.”
August 14, 2001
http://www.pkarchive.org/column/81401.html
“Consumers, who already have low savings and high debt, probably can’t contribute much. But housing, which is highly sensitive to interest rates, could help lead a recovery…. But there has been a peculiar disconnect between Fed policy and the financial variables that affect housing and trade. Housing demand depends on long-term rather than short-term interest rates — and though the Fed has cut short rates from 6.5 to 3.75 percent since the beginning of the year, the 10-year rate is slightly higher than it was on Jan. 1…. Sooner or later, of course, investors will realize that 2001 isn’t 1998. When they do, mortgage rates and the dollar will come way down, and the conditions for a recovery led by housing and exports will be in place.
October 7, 2001
http://www.pkarchive.org/economy/ML071801.html
“Post-terror nerves aside, what mainly ails the U.S. economy is too much of a good thing. During the bubble years businesses overspent on capital equipment; the resulting overhang of excess capacity is a drag on investment, and hence a drag on the economy as a whole.
In time this overhang will be worked off. Meanwhile, economic policy should encourage other spending to offset the temporary slump in business investment. Low interest rates, which promote spending on housing and other durable goods, are the main answer. But it seems inevitable that there will also be a fiscal stimulus package”
Dec 28, 2001
http://www.pkarchive.org/column/122801.html
“The good news about the U.S. economy is that it fell into recession, but it didn’t fall off a cliff. Most of the credit probably goes to the dogged optimism of American consumers, but the Fed’s dramatic interest rate cuts helped keep housing strong even as business investment plunged.”
“To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” -MIT trained economist & Nobel Laureate Paul Krugman in 2002.
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html
|>> [The Rich] did so by getting all the rules on credit loosened so they could run a credit driven economy where the creditors prospered and the debtors wealth and income where destroyed .
So let me get this straight: The Rich loosened credit rules so that they can take on undue risk with their money. Thus, The Rich effectively gave away their money to The Poor(*). This somehow resulted in The Rich getting richer, and The Poor getting poorer.
When you look up, do you see sky or ground?
(*) When you go bankrupt, you still got all the benefits of the money you borrowed. The lender is the one who loses out on the deal.
Some of the empirical assertions even support your point, but you still ignore them.
He doesn’t ignore them. He can’t comprehend them. Yasafi’s “brain” does not compute anything more complicated than, “see spot run”; “Democrats = Good, Republicans = Eeeevil”; or, “His Holiness is the Divine Prophet: Algore I. Those who disagree with His Holiness are doo-doo heads.”
What’s your response to all of those PK quotes, Muirgeo?
I expect no response from him. Truth, facts don’t matter to him. He is an extreme political partisan.
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