According to the BEA last month both personal income and personal consumption expenditures increased by .1%, an amount somewhat lower than had been anticipated. That means that the personal savings rate, pictured above in a graph from the St. Louis Federal Reserve, is moving sideways at its too-low rate of 3.5%.
My interpretation of that graph is that when people are frightened as they were in the trough of the last recession, they save more. When they feel flush as they did at the peak of the bubble, they save less. Now they’ve returned to the same behaviors they had throughout the first five years of the Aughts: a savings rate that’s too low for a healthy economy.
There’s a heated discussion going on in the comments of this post of James Joyner’s at OTB on the troubling situation in Iraq post-U. S. withdrawal. I find the discussion pretty frustrating and will air my grievances here rather than in the comments section of the post itself (after all ’tis the season!) since the most it will accomplish over there is to expose myself to unfair, unwarranted, unsupported, and, frankly, idiotic criticism.
The consensus of the commenters appears to be that the invasion of Iraq was a mistake; they claim to always have held that view. Where the heck were they in 2003 and 2004? Frankly, I believe they’re lying. If they held that position they sure held their tongues about it.
Early in the life of this blog I posted a taxonomy of positions held by various bloggers on the invasion of Iraq and the conduct of the war on terror, generally. The position held by top mainstream partisan Democratic bloggers and pundits, e.g. Kevin Drum, Matt Yglesias, Josh Marshall, Peter Beinart, and many, many others was that they supported the invasion of Iraq. That was also the position staked out by every Senate Democrat who had aspirations to run for the presidency in 2004. By 2004 that view had already begun to fracture into various protestations of injured innocence that took several forms, e.g. Bush lied, the conduct of the war was incompetent, etc.
To repeat my own view as I have done many, many times: I opposed the invasions of Iraq and Afghanistan because (among other reasons) I did not believe that there was any way to conclude the campaigns in a manner favorable to the United States without lengthy occupations (lengthy = a generation or multiple generations) and the American people would not tolerate the consequences of those occupations.
Why can’t the folks who supported the invasions and now claim to have opposed them from the start or supported a competent occupation (if such a thing could exist) or some other pretext just admit they were wrong? Maybe it’s because the human species is not a rational animal but a rationalizing animal.
I’ve been thinking about it for the last day and I’m not sure what to make of this status report on the I Have a Dream project. It’s been a while but you may recall that in 1988 two wealthy businessmen set up a foundation to implement the pact they’d made with 59 fifth grade students in Prince George’s County: complete high school and they’d pay their college tuition.
I found the report confusingly written and prolix but worth reading nonetheless. The database presenting the results is here. In summary 44 (87%) graduated from high school, 12 (20%) graduated from trade school, 11 (19%) graduated from college.
Can any conclusions be drawn from these results? Despite the incentives and the considerable amount of attention, assistance, and enrichment the kids had received other factors or, as one of the students put it, life proved more important in determining the outcomes for the 59.
If any conclusion can be drawn I think it is that one size does not fit all, that higher education is not for everyone, and that we need a country that offers a range of possibilities for leading a decent life rather than a single professionally-oriented path from high school to college to post-graduate education. If that’s the only path for anything other than suicide, prison, or a lifetime working at minimum wage, what will become of the other 90% of the people?
In yet another illustration of the remarkable ability of the American political system to bolt the barn door securely after the horses have already departed, the decline in demand for labor in the construction and retail sectors may have accomplished what Border Control could not. According to Douglas Massey, co-director of Princeton’s Mexican Migration Project, net migration from Mexico is now essentially zero. In all likelihood lower demand for labor on the U. S. side of the border, the dangers of the border region, improved economic conditions in Mexico, and changing Mexican demographics probably all play a part in the change.
The changing patterns in the geography of border crossing, illustrated in the graph above, probably explains some part of the reaction (or over-reaction) in Arizona. Much of what immigration there is at the Arizona border through Sonora.
Even if the U. S. jobs picture were to rebound I doubt that migration from Mexico would return to what was seen in the 1980s and 90s. Mexican demographics, indeed, Latin American and Caribbean demographics has changed. The birth rate has been proceeding at, essentially, the replacement level for some time. That combined with improved economic conditions just won’t present the powerful push seen previously.
I suspect that will be very disappointing to anyone who’s planned on a persistent flow of new migrants whether politicians or businesses. Over the next couple of decades I expect that the focus of world migration is more likely to be into Europe from North Africa than into the United States from Latin America and the Caribbean.
NEWPORT BEACH – A new economic order is taking shape before our eyes, and it is one that includes accelerated convergence between the old Western powers and the emerging world’s major new players. But the forces driving this convergence have little to do with what generations of economists envisaged when they pointed out the inadequacy of the old order; and these forces’ implications may be equally unsettling.
For decades, many people lamented the extent to which the West dominated the global economic system. From the governance of multilateral organizations to the design of financial services, the global infrastructure was seen as favoring Western interests. While there was much talk of reform, Western countries repeatedly countered serious efforts that would result in meaningful erosion of their entitlements.
That was then and this is now:
Suddenly, the world turned upside down: “rich†countries were running large deficits and, in some cases, tipping from net creditor status to net indebtedness, while “poor†countries were running surpluses and accumulating large stocks of external assets, including financial claims on Western economies.
Little did these countries know that their divergent paths would end up fueling large global imbalances, and eventually trigger a financial crisis that has shaken the prevailing international economic order to its foundations.
There is no restoring fully that order. Rather than recovering strongly, sluggish Western growth is periodically flirting with recession at a time of high unemployment and multiplying debt concerns, particularly in Europe. In an amazing turn of events, virtually every Western country must now worry about its credit ratings, while quite a few emerging economies continue to climb the ratings ladder. We can now consider the image of Western delegations heading to emerging countries to plead, cap in hand, for financial support, both direct and through the IMF.
I don’t think he’s wrong in pointing out that we don’t really know what is happening right now. I do think he is wrong in calling it a new economic order. Rather I think it’s a major problem developing for countries that are heavily dependent on exports for economic growth. Consider Germany’s balance of trade:
China’s:
and Japan’s:
For Germany exports are more than 40% of GDP; for China 30% (and constitutes the lion’s share of its economic growth); and for Japan 12%. Until quite recently Japan’s exports had recovered back to nearly 20% of total GDP. The Japanese are in near-panic about the collapse. Note, in particular, that the United States, Germany, China, and Japan all have one thing in common besides being the largest economies in the world: we all import oil and oil constitutes a hefty proportion of total imports. For the U. S. oil makes up about half of our trade deficit; China’s oil imports comprise about a quarter of all its imports.
The problems with a beggar they neighbor mercantilist economic policy really materialize when you’ve actually beggared your neighbor. Our problems with China or Japan’s dependence on exports pale by comparison to the problems it creates for small developing economies. Or Greece’s problems with Germany.
The world has geared up to sell to the American consumer but the American consumer is decreasingly in a position to buy. I think that’s less a new world economic order than upheavals waiting to happen.
Gene Epstein muses over why the recovery from the late recession has proceeded so slowly:
ONE KEY SOURCE OF DISAGREEMENT about the subpar recovery lies in the role played by government policy. Has government been part of the solution, and therefore might it do even more to help solve our economic problems? Or has government mainly been part of the problem itself?
While I suspect the latter, I withhold judgment for the time being, awaiting the 2010 update of the Vancouver, British Columbia-based Fraser Institute’s Economic Freedom Index. Originally developed with the help of free-market economist Milton Friedman, the EFI tracks 42 separate measures equally weighted under five different categories, including “Size of Government,” “Access to Sound Money” and “Regulation of Credit, Labor, and Business.” In light of the bipartisan bickering that is likely to get even more heated as Republican hopefuls square off against President Obama on the economy’s ills, it’s worth noting that over the long-term, the EFI tells a relatively nonpartisan story.
For example, Economic Freedom moved higher in the administration of Jimmy Carter, a Democrat, and even edged up under Bill Clinton, another Dem, to a 30-year high by 2000. The index then began to fall under the administration of Republican George W. Bush. Since research shows that fluctuations in the EFI, up or down, correlate with economic growth, that may be one reason why growth under Bush was noticeably slower than growth under Clinton.
Also noteworthy: The one-year fall in the EFI from 2008 to ’09, the most recent year for which data are available, was the largest on record.
I think that government policy, inevitably attempting to straddle the nominal goal of boosting economic growth with the more urgently felt goal of re-election and, consequently, currying favor with powerful constituencies, probably hasn’t helped as much as it might (or as much as its proponents might have wished) but I’m skeptical of the underlying assumption, namely that there must be some near term change in policy that explains the difference between the Great Recession and other post-war recessions.
I think that policy decisions of Republican and Democratic presidents, Republican and Democratic Congresses, and all combinations thereof have been creating the situation we’re in over the course of many, many years and only substantial, structural changes in the economy will wring the distortion that have been built in by decades worth of bad decisions. Home building, which has lead the way out of most post-war recessions, isn’t likely to recover for the foreseeable future and there really are no other, obvious candidates waiting in the wings.
The economic realignment that we need has scarcely begun, at least in part because we’re so eager to re-inflate the bubbles.
As I make my appointed rounds through the blogosphere I read scores, possibly, hundreds of different blogs on a regular basis across a broad spectrum of ideological and political opinion. Something I’ve been reading an increasing amount of, particularly in the more outrageous economic blogs, is info on preparing for civilizational collapse, survivalist stuff. Much of it focuses on laying in stores of this or that, buying guns, etc.
I don’t know exactly what this reflects. On the quantitative side firearms sales seem to have gone up pretty sharply since the beginning of the economic downturn so I guess people are worried.
While I think that being prepared for emergencies is prudent, I think that most of the concerns I’m seeing are overblown. Presumably, they think I’m a fool for not being more concerned.
It may be the reason that I’m not more concerned is that I think that even in what I think is the very unlikely event of something very serious occurring skills will be more important than gear or supplies.
That and that I think it’s more likely that rather than a sudden catastrophic collapse we’re more likely to see a gradual decline with travel becoming increasingly difficult and things just not working as well as they used to.
Throughout the Christmas season while we eat our dinner my wife and I open the Christmas cards we’ve received that day. Imagine our surprise the other night when we opened one envelope and inside was a 30 year old Christmas card and a note. The note, from someone we’ve never met or heard of, explained that they’d bought the card, stamped, addressed to us and unopened, at a flea market and they’d decided to forward it on to us. The postage of thirty years ago was inadequate to mail the card so they’d added some new stamps to the 30 year old stamp still affixed to the envelope.
People sometimes do remarkable things. Now we have a mystery to unravel.
In the BAD old days before my mom discovered nutrition I remember a number of items frequently found in our larder that in retrospect must have been absolutely horrible for us. I’ve been trying to dredge up the memories to horrify my readers or, possibly, to frighten children with.
Among those noxious, allegedly food items two stand tall above the others: Cheez Whiz and Marshmallow Fluff. I recall my mom heating up a jar of Cheez Whiz in a saucepan of hot water (remember: these were the days when microwaves were limited to commercial use; they’d only been invented in 1947) to make a quick cheese sauce to pour over vegetables or for a quick Welsh rarebit.
Marshmallow Fluff was mostly used to make fudge or an easy cake frosting. Since Marshmallow Fluff’s famous fudge recipe wasn’t produced until 1956, that hones in on the timeframe pretty well.
Both Cheez Whiz and Marshmallow Fluff continue to be made
We also ate Spam, canned Vienna Sausages, and Underwood Deviled Ham. I haven’t let any of those things cross my lips in, perhaps, a half century and I sometimes wonder about them. Would I be able to stomach them now? I also have a vague recollection of tinned tuna sausages.
The other awful things that I recall were mostly kid things, e.g. Fizzies and Flavor Straws. Fizzies were tablets put into water to make a disgusting colored, flavored, and sweetened drink. Sort of like carbonated Kool-Aid but worse in flavor. Fizzies were dealt a deathblow by the federal government when some of the substances used to make them were banned. I understand they’ve made a resurgence with a new formulation.
I note that Flavor Straws, too, have made a come back. I would have thought that a stake would have been driven through their heart long ago but apparently not. Sometimes I’m surprised that we survived to reach adulthood.