Fake Economic News

As Joel Kotkin points out, Donald Trump faces two major hurdles.  One is the structural mess Barack Obama left; a shallow, fragile “prosperity” (nonetheless called a “boom” by the Democrat media) built on hoarding low-interest cash.

The second?  The perception that the media is pumping out that this potemkin prosperity is actually a “boom” (emphasis added):

Yet this is more a matter of perception than reality, a kind of “fake news.” To be sure, President Barack Obama inherited a disastrous economy from George W. Bush and can claim, with some justification, that on his watch millions of jobs were restored and the economy achieved steady, if unspectacular, growth. Under Obama average GDP growth has been almost twice as high as under his predecessor, but roughly half that of either President Reagan or Clinton.

(And, lest anyone forget, “under Clinton” really means “under Gingrich”, since Clinton showed every sign of being no  better than Obama for his first two years).

Less appreciated, however, are the fundamental long-term weaknesses in the U.S. economy that Obama and Bush have left for Trump. A recent report from the U.S. Council on Competitiveness details a litany of profound, lingering flaws — historically slow growth, rising inequality, stagnant incomes, slumping productivity and declining lifespans. As the report concludes: “The Great Recession may be over, but America is dangerously running on empty.”

Like everything by Kotkin, it’s worth a read.

25 thoughts on “Fake Economic News

  1. For the sake of convenience, let’s say the current era of economic globalism began with NAFTA: January 1, 1994.
    Since that time, we have suffered two extended periods of sub 3% GDP growth (2001-2003, 2008-present). The middle class in the United States has been decimated. Globalism has not led to greater prosperity for everyone or a more stable economy. We have been sold a lie.
    Revolutions happen when people feel that they do not control their own economic future. The globalists want your economy to be controlled by unelected, nameless and faceless bureaucrats.
    If you want to buy a home, the actors, in order of importance, are 1) your employer, 2) Janet Yelen and the Fed, 3) The bureaucrats at the CFPB (Consumer Financial Protection Bureau), 4) you.

  2. It strikes me that we need a measure of economic growth that takes population growth into account–recessions ought to be described by when the median income goes down, not the overall GDP or mean income. And even better, if both parents need to work to make ends meet, actual income is counted as income minus likely childcare expenses or some such thing.

    Hard to believe, really, that the media aren’t cluing in to how badly the government has gummed up growth.

  3. MP: To those who wish we didn’t have central banks and returned to the dubious delights of the 19th century (plenty boom and bust then, despite price stability), you can’t do it with a 21st century financial system, and there’s no way to get from here to there, so give up on it.

    BB: If the upper middle class were choosing to have mom stay at home, you would be correct, lower participation would be essentially a luxury being purchased by the well off. However, most of the upper middle class are bringing in two incomes. It is the lower deciles who are struggling with one or two part-time jobs between two adults, both of whom wish to work.

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  5. To those who wish we didn’t have central banks and returned to the dubious delights of the 19th century (plenty boom and bust then, despite price stability), you can’t do it with a 21st century financial system, and there’s no way to get from here to there, so give up on it.
    So it cannot be done. Or undone.
    People can do anything — every day is a blank page. Whether or not it is wise to do so is another matter. I remember that it was not long ago that people said a British exit from the EU was impossible. Economics is psychology, not physics.
    All a central bank can do is set interest rates within a legal framework that is set by politicians. That means that there is no firewall between fiscal and monetary policy.
    In the middle ages and early modern times, when the gold standard ruled, interest rates were very high for even high profile borrowers (the figure 8% quarterly in Elizabethan times sticks in my mind). This was at a time when inflation, measured by the cost of grain, was very small. There was a huge demand for money, and very little money to lend.
    An economics student could write a career-making PhD thesis on that fact alone.
    Before you say that central banks are inevitable, you need to be able to say what central banks do and cannot do, and whether the cost of a central bank is worth the results.

  6. All of the answers are in David Stockman’s new book. See his podcasts at ContraKrugman, Tom Woods, and Peak Prosperity.

    Technology and globalized labor creates deflation. Prior to the invention of the inflationist Fed, this was known as better living though increased purchasing power and economic efficiency.

    Inflationism sort of worked for 100 years. Now it is killing us. Voting just makes it worse. We have too much entrenched government and debt to turn it off easily. Asset bubbles. Massive unfunded liabilities.

    We’re screwed.

  7. To be clear, all of the major economies are like this and every central bank has a gun to the head of the others. If one eases, the rest of them have to eventually. None of them can raise interest rates because there is too much debt.

    There is a bubble in everything except gold and select real estate. The adjustment will be brutal.

  8. Emery Incognito: If central banks do ANYTHING beyond just backing up banks in a punitive way, we are better off without them. Read Stockman’s book.

  9. Inflation is bad, deflation is bad. The ideal inflation rate is a Goldilocks problem, i.e. two sided. Inflation targets were introduced to help fight high inflation, and were certainly a part of the solution to that problem. To complain about targets because they are above current inflation levels is to ignore the two-sided nature of the problem. Deflation is deeply damaging, because it discourages the movement of capital, i.e. investment, and so is worth while avoiding.

    Who does inflation help and hurt? It hurts those on non-inflation adjusted fixed incomes, like some pensions, and those who have some savings but lack the means or knowledge to invest in a sophisticated way. It helps those in debt, particularly if the inflation is led by wage growth. It hurts creditors in the short run, although it will help banks in the medium term as spreads grow. It makes investing trickier, but if investors put there money where it is doing some work, they can offset inflation effects.

    There may be a bubble caused by government pumping money into the economy post-2008. If so, the sooner it is popped due to a bout of inflation, the better. Leaving the bubble to grow only stores up more trouble. So on balance a 2% inflation target, while not a perfect system, is better than the alternatives.

  10. “Deflation is deeply damaging,” WRONG. 1000% WRONG.

    Without a central bank there is an ongoing, gentle deflation that is simply the nature of human progress. Everyone’s purchasing power constantly goes up. Redistribution without government force.

    We have been goosing our economy with debt, inflation and asset bubbles for 100 years. It only worked due to some unique reasons that will never be repeated again. The Fed can’t stop the deflation from technology and globalized labor. This will manifest as a bond market collapse or some kind of statist police action that lets them force inflation on us.

  11. Inflation and the dangerous deflation like a parking lot building pancaking is strictly the product of bad government and bad central banking.

  12. The last time the US government had this much debt (1945), it used inflation to reduce the burden relative to GDP, with the collusion of the Fed. Bad news for war bond holders. Good for the country?

  13. Emery: Right. The problem is, our budgets are so otherwise big now that the corresponding bond market interest rate now breaks the government plus there are mega asset bubbles that would pop. It will only “work” under severe financial repression tactics. Put another way, there is no straightforward way to “defease” the debt with a combination of growth and inflation. Also demographics is killing us.

    Back then they could do financial repression without it becoming a big visible deal like today.

    Central bank inflation and discretion is a 100% bad thing unless you are trying to survive a war or something. ALL inflation = regressive taxation, asset bubbles, or monetized goverment debt.

    My guys have been seeing this coming since 1997.

  14. Inflation makes people need government. It aids rent seekers in living off of government. It’s a scam that distorts the political system. Until the bond market collapse.

  15. I can concede that central banking is a huge issue which affects all kinds of things related to the scope of government, but going straight to “end the Fed” reminds me of friends who wanted to terminate the Constitution and go back to the Articles of Confederation–apart from the question of whether it’s advisable, you’ve got the question of whether it’s achievable, and whether we can get almost all of what we want with an intermediate step.

    For the “Articles of Confederation” one, my question for my friend was whether it would be good enough with the Constitution back. (yes, it would) For the Fed, the question that comes to mind is whether things would improve sufficiently it we simply reined in regulations and spending and reformed the tax code–and without a lot of new debt for the Fed to buy and sell, their power declines markedly.

    “If”, of course, and “If” the Fed doesn’t manage things like the “Bank of the United States” did during Jackson’s Presidency, of course. But “If,” then “yes”, it just might be enough.

  16. Regarding ending the Fed altogether, you’d have to figure out a way to get enough gold to back the dollar again–wouldn’t need a 100% backing of course (typical was 2% or so), but you would need to figure out a way of gracefully doing that. Not the easiest thing in the world, IMO. If you didn’t, you end up with the worst characteristics of a fiat currency, I’d think.

  17. I hate both the Fed and the gold standard. You shouldn’t be able to become a financial world power just because your geography is right.
    In one of the Star Treks they used a currency called “gold pressed latinum” (or maybe “cold pressed latinum”?). The reason it had value was that it could not be replicated. That is like bit coin.
    Maybe the gold bugs and the central bankers are chasing something that cannot be – low inflation, moderate growth and full employment, all at the same time.
    I remember reading in one of Mark Twain’s books him lamenting that a gallon of whiskey now cost a quarter when it had only cost a dime when he was a boy. Twain was born in 1836 and died in 1910, he spent his whole life with the US on the gold standard.
    The value of gold tracks GDP, but with greater volatility than GDP. So what are you buying when you buy gold? I have a dozen Krugerands. I bought them about a decade ago. I used triage; Krugerands are (or were) about the cheapest 1 oz. gold coin you can buy, because of the stigma of South African apartheid. If the human waste hits the fan no one will care about that. In fact, Krugerands might have more of a cachet than Gold Chinese Pandas or Canadian Maple Leaves.
    So, what’s a fella to do?
    Push personally for high growth politics and invest in index funds.
    If you think a recession is inevitable, switch from an index fund to bonds.
    Buy physical gold when you are feeling flush.

  18. The planet has plenty of gold. You just jack up the price by government force until it gives colored pieces of paper a 40% backing or whatever our rulers think will work. It will triple before we have to worry about that, though.

    King Banaian says they just need to use a ten commodity price standard. The main thing is it has to be a HARDER NON-DESCRETIONARY system that mostly just backs up banks in a punitive way.

    Again, the West is trapped. We have too much debt and entrenched government to fix it in a controlled way. Congress is too stupid and dishonest to do the right thing anyway.

  19. For the record I’ve seen a couple of smart gold guys say they are worried about a severe drop, so dollar cost average, in.

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