The horizon is not so far as we can see, but as far as we can imagine

Tag: BLS

Why Economists Are Wrong About How Good The Economy Is, And Regular People Are Right

Practically every day I read an economist like Paul Krugman or Brad DeLong talking about how the economy is the best ever, but ordinary people just don’t get it, and must be idiots influenced by propaganda.

Someone’s an idiot on this subject, but it’s not ordinary people.

Mish Shedlock had a good article on medical inflation. Here’s two charts from his article. First, costs:

Second, CPI for medical:

You might be noticing a—slight disconnect. The cost of medical care services (which is what you care about as a patient) are dropping, according to the Bureau Of Labor Services (BLS).

Mish has the extended explanation, and you should read his whole post.

Now, back in 2010 I wrote an article on how inflation statistics are bullshit. One example was automobile costs. Here’s the chart from that.

Yeah. right.

The inflation statistics, at the this point, are complete bullshit. Absolutely worthless in entire categories.

When it comes to how good people feel two things matter: how many people have a job, and how much money they’re making. When economists look at wages, they look at “inflation adjusted wages.”

How much your money buys. So, since the inflation numbers are garbage, the inflation adjusted wages are garbage.

A long time ago Stirling Newberry gave me a rule of thumb, which is that people are fooled in generalities but not in specifics. Which is to say, people know what hurts or feels good in their own lives, though may be completely clueless about the generalities. But when you take a survey asking people how the economy is doing, what you’re really asking is “how does it feel for you and people you know.” The answer is “shitty.”

I’ve personally seen, in Toronto, Canada, foodprices increase at least two-thirds. If I buy the shopping basket I bought for $30 in 2020, it now costs me about $50. A lot of things have doubled in price. Rent is way up for most people.

And when I talk to other people, no matter where in the US or Canada they’re from, I hear the same thing. So I’ve never believed the BS talk about the “best economy ever.”

Back in the 90s, there was a rather good book titled, “Economists are bad for your health.” Economists are clueless. North of 99% of them missed the 2000’s housing and financial bubble, for example. The advice they give on how to run economies is almost always not just bad, but terrible, at least for 96% or so of the population.

The most important requirement to understanding the world is accurate perception. Truth, if you will. If you don’t know the truth, you’re going to draw the wrong conclusions. Economists believe BLS stats, so they’re full of it. Add to that the fact that Economics as a discipline is mostly wrong about almost everything macro, and economists are out to lunch in a very dangerous way.

(Note that I predicted the financial crisis, publicly, in advance and spent years before that writing about the bubbles. All the necessary information was available, if you didn’t think nonsense like markets being self-regulating and housing prices always going up. A correspondent once did a search to find out how many people predicted the crash in advance. He found 39. Where were all the economists, who are supposed to understand the, well, economy?)

Anyway, ordinary people are right. Their wages haven’t increased enough to make up for the increases in key prices. You can skip on a lot of things, but not food and shelter, and skipping on medical services is bad too. As for autos, well, most people need them or they can’t get to work or go shopping.

We have late imperial disconnect: the elites live in a world where everything is great, while ordinary people live in the real world, and it sucks.

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The Inflationary Consequences of Friendzoning and Decoupling

During the rise of China and the “One World/Free Trade” period, one good thing which can be said for offshoring is that it helped reduce inflation.

It, indeed, drove much of the inflation reduction, with most of the rest of the inflation reduction being concerted efforts to keep wages low, with a strong assist from the Bureau of Labor Statistics to use methods like hedonics to pretend that inflation was lower than it actually was.

The new mantra is “friendzoning” — not so much bringing industry back to the US but moving it to friendly countries. Vietnam and Bangladesh are mentioned often, and Mexico will benefit as well. But friendzoning has limits, these countries don’t have the capacity to quickly take on all the production done for the US and Europe, nor do they really have the technological ability in the medium run.

This means that the determination to have a new cold war, and possibly a hot war with China will drive inflation higher for years to come.

The solution would be to, more than friendzone, re-shore: bring production back to core nations. But that would require reducing the cost structure: and I don’t mean wages so much as I do predatory finance and driving rent and housing prices down massively — about two-thirds at a minimum, along with no longer health-care predation. Do those things and wages don’t have to rise nearly as much, and the US (and Europe to a lesser extent) become much more competitive.

But to re-shore, you have to, in effect, give ordinary people a decent deal and not treat them as assets to shorn, but rather as productive assets to be cared for. (Note you don’t have to do this out of the goodness of your heart, our elites don’t have any of that.)

For the time being, this seems unlikely, so don’t expect inflation to go away. All the Federal Reserve can really do to stop it is push the economy into the dirt, but that’s not going to be a long term solution unless it stabilizes at “you’re a third world nation”, which, actually, probably won’t solve it either.


Job Report: Better than expected

As everyone probably knows by now, the job report was better than expected (certainly better than I would have predicted), with the payroll survey showing only 345,000 job losses, which compared to last month’s 506,000 looks pretty good.  Of course, 220,000 of this came from increases in jobs due to the birth/death model.  I haven’t, as a rule, hammered the birth/death model the way some other econobloggers have, but I’ll just point out what should be obvious: there is no way that unreported new businesses are being created in excess of lost businesses right now.  It’s not happening.  So those 220,000 jobs don’t exist except in some statisticians fevered imagination.  That said, the news is still good, because the birth/death model was around in prior months too.

Overall job losses for the duration of the downturn are still horrific, and in particular the manufacturing industry, which lost jobs virtually all through the last “expansion” continues to take it on the chin.  Since these are generally relatively good jobs, and since they also tend more towards being export jobs, this is worrisome.

The only sectors which actually added employees last month were general retail stores, and health and education.  Health and education, of course, means government.  General retail stores is a good sign, but the numbers aren’t all that large, and in the face of continued job losses and tightening credit, I’m less than convinced that consumer spending is not going to drop again.

The primary negative factors I see still operating are twofold.  First, I expect another massive round of mortgage defaults, and second I expect to see municipalities and States start doing some very significant layoffs.  If health and education were to start losing significant jobs, that would be a significant blow.

On the plus side, the majority of the stimulus is still to come, and the massive amounts of money pumped into the financial system are obviously having some mitigating effects.

I’m going to hold steady on my long term prediction that employment will not recover before the next recession, and that median disposable income is going to decline over the length of this economic cycle.

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