You’d think with all the “stimulus” from Washington over the
fifteen years since the dotcome bust, American capitalism would be booming.
It’s not. On the measures which count when it comes to sustainable growth and
real wealth creation, the trends are slipping backwards — not leaping
higher. After a look at new jobs data in April, we find the number of breadwinner
jobs in the US economy is still two million below where it was when Bill
Clinton still had his hands on matters in the Oval Office. Since then we have
had two presidents boasting about how many millions of jobs they have created
and three Fed chairmen taking bows for deftly guiding the US economy toward the
nirvana of “full employment.” When you look under the hood, it’s actually
worse. These “breadwinner jobs” are important because they’re the only sector
of the payroll employment report where jobs generate enough annual wage income
— about $50k — to actually support a family without public
assistance. Moreover, within the 70 million breadwinner jobs category, the
highest paying jobs which add the most to national productivity and growth —
goods production — have slipped backward even more dramatically. There were
actually 21 percent fewer payroll jobs in manufacturing, construction and
mining/energy production reported in April than existed in early 2000.
Now let’s look at productivity growth. If you don’t have it, incomes and living standard gains become a matter of brute labor hours thrown against the economy. In theory, of course, all the business cycle boosting and fine-tuning from fiscal and monetary policy, especially since the September 2008 crisis, should be lifting the actual GDP closer to its “potential” path, and thereby generating a robust rate of measured productivity growth. Not so. Despite massive policy stimulus since the late 2007 peak, nonfinancial business productivity has grown at just 1.1 percent per annum. That is just half the 2.2 percent annual gain from 1953 until 2000. So Washington-engineered demand stimulus is self-evidently not pulling up productivity by its bootstraps. Indeed, if you go back to the 1953–1973 peak-to peak period, which also encompassed several business cycles, the annual productivity growth rate averaged 2.7 percent, or two and one-half times the last fifteen year outcome. The same picture occurs on real median household income. During the same 1953–1973 interval, real median family income grew at 3.0 percent annually, rising from $26k to $46k during the period. By contrast, over the course of the next twenty-seven years, and after Washington ended both the Bretton Woods gold standard anchor on money and the practice of balanced budgets, real median incomes grew by only 0.8 percent annually, rising to $57k by the year 2000. Needless to say, it’s been all downhill since then. Real median income was $53k in 2014. That means median living standards of US households have been falling at a 0.5 percent annual rate since the turn of the century. There is no prior fifteen year period that bad, including the years after the 1929 crash.
Now let’s look at productivity growth. If you don’t have it, incomes and living standard gains become a matter of brute labor hours thrown against the economy. In theory, of course, all the business cycle boosting and fine-tuning from fiscal and monetary policy, especially since the September 2008 crisis, should be lifting the actual GDP closer to its “potential” path, and thereby generating a robust rate of measured productivity growth. Not so. Despite massive policy stimulus since the late 2007 peak, nonfinancial business productivity has grown at just 1.1 percent per annum. That is just half the 2.2 percent annual gain from 1953 until 2000. So Washington-engineered demand stimulus is self-evidently not pulling up productivity by its bootstraps. Indeed, if you go back to the 1953–1973 peak-to peak period, which also encompassed several business cycles, the annual productivity growth rate averaged 2.7 percent, or two and one-half times the last fifteen year outcome. The same picture occurs on real median household income. During the same 1953–1973 interval, real median family income grew at 3.0 percent annually, rising from $26k to $46k during the period. By contrast, over the course of the next twenty-seven years, and after Washington ended both the Bretton Woods gold standard anchor on money and the practice of balanced budgets, real median incomes grew by only 0.8 percent annually, rising to $57k by the year 2000. Needless to say, it’s been all downhill since then. Real median income was $53k in 2014. That means median living standards of US households have been falling at a 0.5 percent annual rate since the turn of the century. There is no prior fifteen year period that bad, including the years after the 1929 crash.
Labour Force Fundamentals Declining: The argument of the Keynesians is that capitalism is a
chronic underperformer. Left to its own devices it is always leaving idle labor
and capital resources on the table, and is even prone to bouts of depressionary
collapse absent the counter-cyclical ministrations of the state and its central
banking branch. Well, then, given the monumental size and chronic
intensity of policy stimulus during the last fifteen years, that particular
disability should have been eliminated long ago. The US economy should be surfing
near its full potential. In that regard, one measure of high resource
utilization most surely would be the labor force participation rate. However,
after the one-time boost of increased female participation after 1980, the
trend has been in a nose-dive. And it’s not due to the baby-boomers getting old
and repairing to the shuffleboard courts. Since the year 2000 — a time
when the Fed’s balance sheet soared by nine-fold from $500 billion to $4.5
trillion — the prime age labor force participation rate has plummeted by 10
percentage points. A similar trend can be seen in the measures of
aggregate labor hours. Even if productivity has turned punk, it might be
thought that all this policy stimulus would flush labor hours into the economy.
But despite an increase from 212 million to 250 million of the working age
population since the year 2000, there has been virtually no gains in labor
hours utilized by the private business economy, and this is all the more
obvious when we remember that not all headline jobs are created equal — even
though it is well known that the BLS counts a four hour window-washing gig and
a 40-hour week in a steel mill the same. So the underlying truth is that
actual apples-to-apples labor utilization has been going nowhere. In Q4 2014,
the index of non-farm labor hours utilized by the business sector posted at
109.8 — virtually the identical level recorded in early 2000. That’s
right. After growing at a 1.6 percent annual rate for a half-century running
(1953 to 2000), labor resources deployed have flat-lined for the past 15 years.
Rather than contributing to higher utilization of resources, the massive,
chronic stimulus policies of recent years have been associated with just the
opposite. So when it comes to the building blocks of prosperity, policy
stimulus has not been stimulating much of anything — except a slide
downhill. And while the American economy stagnates, serious global risks
remain on the horizon.
China at Risk: In China, the most fantastic credit bubble in recorded
history is beginning to burst. That is, notwithstanding Wall Street’s sell-side
propaganda, China’s vaunted $10 trillion GDP is not capitalist GDP in any
familiar or meaningful sense; nor is it the product of organic market-based
economic growth. Instead, it is “constructed GDP” which has been
fabricated out of centrally issued and allocated fiat credit. Over the past two
decades the People’s Printing Press of China issued virtually unlimited bank
reserves in the process of buying up dollars to peg the RMB exchange rate in
support of its national policy of export mercantilism. This, in turn, has
enabled China’s total public and private credit outstanding to soar from $2
trillion at the turn of the century to $28 trillion today. In short, the
overlords of red capitalism in Beijing caused the entire nation to borrow
itself silly in order to fund a construction and investment mania that has no
historical parallel. Indeed, the fourteen-fold explosion of debt in fourteen
years has resulted in not only trillions of artificial “printing press GDP,”
but, more importantly, in a stupendous accumulation of over-valued and
uneconomic “assets” on both public and private accounts. There are
currently an estimated seventy million empty high rise apartment units in
China, for example, because under the baleful influence of unlimited credit
these apartments were built for asset appreciation, not occupancy. In fact,
most of China’s tens of million of punters who have invested in these units
have taken pains to keep them empty and spanking new; like contemporary works
of art, appreciation potential can be impaired by marks and
scrapes. Needless to say, there is a huge problem when you turn rebar,
concrete, and wallboard into tulip bulbs. Namely, when the price mania finally
stops not only do the speculators who put their savings into empty apartment
units get crushed, but, more importantly, demand for new units quickly
evaporates, causing a devastating contraction up and down the building supply
chain.
The Eurozone’s Wishful Thinking: Meanwhile, in Europe, Greece and the EU are pinned between a
rock and a hard place. There is not a chance that Greece can service its
monumental debt, yet the eurozone politicians are now petrified by the fiscal
trap they have concocted during their can-kicking rituals since 2010. So
the baleful facts bear repeating. The eurozone governments have committed to
$200 billion of direct fiscal guarantees to Greece, but in cobbling these
expedients together during the 2010 and 2011 crises what the politicians of
Brussels really did was to stick the ECB with the ultimate Old Maid’s
card. Stated differently, in the process of bailing out their own banks,
which were stuffed with Greek sovereign and private credits, Brussels did just
enough to stabilize the private credit markets and ward off the vultures. This,
in turn, allowed the ECB to pretend that Greek collateral was money and to
pacify the German monetary sticklers about the sin of monetizing state debt. At
length, the ECB became the money market for the entire Greek
economy. Greece owes the ECB upward of $140 billion. That is, the Greek
state and banking system owes the ECB more money than the entire deposits of
the Greek banking system! Altogether then, Greece owes the politicians and
apparatchiks who rule the continent from Brussels and Frankfurt the staggering
sum of $340 billion. In fact, the sum is not staggering; it is lunacy itself.
The cowardly, self-perpetuating rulers of the European superstate have managed
to loan Greece what amounts to 3 percent of their own GDP when Greece itself
only accounts for 2 percent of eurozone economic output. In the event of a
blow-up and Grexit, exactly how would this mountain of Greek collateral be
collected? Would it be done by the German army sent in to occupy the Greek ports
and railway stations?
The Serial Bubble Machine: With our own flat-lining economy at home and serious risks
of implosions abroad, one would think that now is a good time to take an honest
look at the state of the global economy and do some serious planning. But
there’s no danger of that happening because the monetary politburo in the
Eccles Building ignores all these fundamentals in order to focus on the
short-run “incoming data.” It actually believes it can steer the business cycle
as in times of yesteryear when the credit channel of monetary transmission
still functioned effectively — even if destructively in the long-run. But
that was a one-time parlor trick. Nowadays, American households are at “peak
debt” and on a net basis can no longer raise their leverage ratios to
supplement wage- and salary-based income with more borrowings. Likewise,
business borrows hand-over-fist in response to the Fed’s dirt-cheap cost of
debt, but the proceeds go into financial engineering, not productive
investment. So the Fed blunders forward, oblivious to the fact that it is
now 2015, not 1965, maintaining the lunacy of zero or soon near-zero interest
rates. That maneuver creates floods of new credits, but in the form of gambling
stakes which never leave the canyons of Wall Street. In so doing, they inflate
financial assets values until they reach such absurd heights that they collapse
of their own weight. The Fed has thus become little more than a serial
bubble machine. Tracking the incoming data during the intervals between
financial boom and bust, it mistakes unsustainable short-run gains for real
economic growth. But overwhelmingly, the incoming data has been recording
temporary GDP and born again jobs. For the second time this century we
have had a boom in the part-time economy of jobs in bars, restaurants, retail,
leisure and personal services. These jobs on average represent twenty-six hours
of work per week and average wage rates of around $14/hour, thereby generating
less than $20k on an annual basis. Since the top 10 percent of households
account for upward of 40 percent of consumer spending it is not hard to see
what will happen next. When this third and greatest financial bubble of this
century finally collapses, the bread and circuses jobs will vanish in a heartbeat.
David Stockman: was director of the Office of
Management and Budget under President Ronald Reagan, serving from 1981 until
August 1985. He was the youngest cabinet member in the 20th century. The
original Article Can be Found Here
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