Tuesday, September 6, 2016

The economy: If you're not worried yet, you should be!

I've written for years about the dangers of an economic downturn.  Many people regard such talk as 'crying wolf' - seeing non-existent dangers behind every bush.  Nevertheless, I've always been able to give reasons for my concerns, and some of you have researched them for yourselves and come to similar conclusions.  I've emphasized that I don't necessarily see it as a sudden, all-in collapse (although that's possible), but more likely a long, dark economic twilight.  Some of the articles I've written include (but are not limited to):

The economy: "Things fall apart" -

I'm seeing a confluence of factors and symptoms right now that make me seriously worried for the short- to medium-term health of our economy.  Let's look at them in turn.

First, the New York Post identifies several aspects of our lives and day-to-day economic activities that need fixing, but aren't being fixed.  It goes so far as to call them 'signs of an economic collapse'.  Here's an excerpt.

What does the beginning of an economic collapse look like?

Do you see grocery stores closing? Do you see other retailers, like clothing stores and department stores, going out of business?

. . .

Are you making as much money annually as you did 10 years ago?

. . .

Is the pothole on your street getting larger instead of getting repaired? Is there more than one street light out in your town?

. . .

So what does an economic collapse look like in the 21st century? What is listed above is just the tip of the iceberg of what I’ve witnessed recently near my home, which is a typical middle-class suburban neighborhood.

If you look through the prism of “Jeez, it wouldn’t take much money to fix that,” now you begin to have an answer as to why it’s not fixed.

There's much more at the link.  Important and thought-provoking reading.  Oh - and when the Post asks "Are you making as much money annually as you did 10 years ago?", don't just think in terms of the number of dollars, but how much you can buy with them.  That's gone way down over the course of a decade.  $100 in 2016 will buy you less than half as much of many commodities as it would have in 2006.  Ignore the 'official' rate of inflation.  It's politically correct pablum, and bears little or no relation to reality, as we've discussed before.

Next, Karl Denninger muses on Labor Day and politics.  Noting the decline in the number of jobs available, he opines:

A nation full of either beggars or slaves will work for pennies but neither is a natural state of affairs absent active interference. Likewise, a nation that engages in manipulation of its currency, unsound pyramid lending and similar schemes may appear to have lower labor costs but that is a chimera created by the theft of value from other persons.

Further, we must accept and deal with the fact that not everyone is a rocket scientist.  Not only are a lot of people not interested in learning how to program a computer (or a robot) or engage in some other form of "high tech" enterprise a large percentage of the population is intellectually incapable of it -- either entirely or in the majority.  Unless you intend to start literally executing anyone with an IQ under 120 or so you had better figure out what those persons who are marginally on the left side of the IQ bell curve are going to do for productive work or you're going to quickly find that 30% of the population is left paying the entirety of 100% of the life expenses of the population.

Again, more at the link.

Please note the last sentence in the excerpt above.  Remember Mitt Romney's remarks in 2012 about 'the 47%'?  Today it's more like 53-55%, depending on whose statistics you believe.  At least half the US electorate is a net recipient of money from, rather than a net contributor of money (i.e. taxes) to, the federal government.  That money is coming from taxes paid by the part of the electorate that is productive and earning a living . . . and that part is decreasing by the year.  How long can it be until more of the productive decide they've had enough?  How long before they deliberately stop producing (and earning) so they, too, can go suck on the government teat?  And who's going to pay the increased burden then?

What's more, our education system is producing more and more people who are simply incapable of learning the skills needed in the modern job market.  They're 'on the left side of the bell curve', as Mr. Denninger puts it. A frightening article by Prof. Patrick Deneen of Notre Dame University should scare us all.  Remember, he's speaking about the cream of the academic crop - students who make it into our 'top' universities.

My students are know-nothings. They are exceedingly nice, pleasant, trustworthy, mostly honest, well-intentioned, and utterly decent. But their brains are largely empty, devoid of any substantial knowledge that might be the fruits of an education in an inheritance and a gift of a previous generation. They are the culmination of western civilization, a civilization that has forgotten nearly everything about itself, and as a result, has achieved near-perfect indifference to its own culture.

. . .

Our students’ ignorance is not a failing of the educational system – it is its crowning achievement ... We have fallen into the bad and unquestioned habit of thinking that our educational system is broken, but it is working on all cylinders. What our educational system aims to produce is cultural amnesia, a wholesale lack of curiosity, history-less free agents, and educational goals composed of content-free processes and unexamined buzz-words like “critical thinking,” “diversity,” “ways of knowing,” “social justice,” and “cultural competence.”

. . .

I love my students – like any human being, each has enormous potential and great gifts to bestow upon the world. But I weep for them, for what is rightfully theirs but hasn’t been given. On our best days, I discern their longing and anguish and I know that their innate human desire to know who they are, where they have come from, where they ought to go, and how they ought to live will always reassert itself. But even on those better days, I can’t help but hold the hopeful thought that the world they have inherited – a world without inheritance, without past, future, or deepest cares – is about to come tumbling down, and that this collapse would be the true beginning of a real education.

More at the link.  Bold, underlined text is my emphasis.  I can't hope for the collapse I fear, but I think he's right in that it would at least force our society to face up to reality, and 'break' the cocoon in which we've insulated ourselves from reality.

So, how do these signs and symptoms add up to a danger of economic collapse?  NASA studied the subject a few years ago, and came up with some surprising answers.

"Two important features seem to appear across societies that have collapsed," reads the study. "The stretching of resources due to the strain placed on the ecological carrying capacity and the economic stratification of society into Elites and Masses."

In unequal societies, researchers said, "collapse is difficult to avoid.... Elites grow and consume too much, resulting in a famine among Commoners that eventually causes the collapse of society."

As limited resources plague the working class, the wealthy, insulated from the problem, "continue consuming unequally" and exacerbate the issue, the study said.

Meanwhile, resources continue to be used up, even by the technologies designed to preserve them. For instance, "an increase in vehicle fuel efficiency technology tends to enable increased per capita vehicle miles driven, heavier cars, and higher average speeds, which then negate the gains from the increased fuel-efficiency," the study said.

. . .

For those who think modern society is immune from the problems that brought down ancient civilizations, a "brief overview of collapses demonstrates not only the ubiquity of the phenomenon, but also the extent to which advanced, complex and powerful societies are susceptible to collapse," the study said.

More at the link.

I think the earth's resources, while strained, are not yet stretched to breaking point;  but the economic stratification identified by NASA is very clearly visible.  From the New York Post article cited above:

You may have witnessed many of these situations, but you tell yourself it can’t be an economic collapse because the stock market is at an all-time high.

Does that mean all is well? No, this is what a 21st-century economic collapse looks like in the beginning.

The divide between the haves and the have-nots is growing exponentially. If the 99 percent can’t contribute to the economy because of the dire financial situations they find themselves in, then you see gross domestic product growth reports of 1 percent, such as we have seen lately.

Don’t be fooled into thinking that the stock market is any indication of the health of an economy.

It’s a rigged market to placate the masses — most of whom do not have much skin in the game — and convince them that all is well, when in fact the opposite is true.

According to the Clarion-Ledger:

Income inequality has surged near levels last seen before the Great Depression. The average income for the top 1 percent of households climbed 7.7 percent last year to $1.36 million, according to tax data tracked by Emmanuel Saez, an economics professor at the University of California, Berkeley. That privileged sliver of the population saw pay climb at almost twice the rate of income growth for the other 99 percent, whose pay averaged a humble $48,768.

That pretty much confirms what the New York Post says about 'the divide between the haves and the have-nots', doesn't it?  It's even worse when you consider that the 99%'s 'average pay' of $48,768 includes both those actually earning a living, and those sucking on the government teat through welfare and entitlement programs.  Probably more than half of the bottom 99% aren't actually 'earning' that - they're taking it from those that are earning (and paying tax on what they earn).

Then there are external factors, the most recent of which is the bankruptcy of Hanjin Shipping (which we discussed on Saturday).  It may be the first domino in several more that will fall in the shipping and transport industry.  I believe it'll have a ripple effect on Christmas shopping in the USA and Europe.  Many retailers depend on the Christmas shopping season to make a profit for the year overall;  so if their sales are disrupted due to lack of stock, they may find themselves in parlous financial positions.  It's too early to say for sure, but I won't be surprised to see a couple of big-name retailers go out of business next year as a direct result of Hanjin's woes, and their ripple effects.

There's also the effects of decades of economic fecklessness in US fiscal and budgetary policy, which can be laid at the door of both major parties.  We've more than doubled our national debt since President Obama took office.  If Hillary Clinton wins election in November, expect that pattern to continue and to get worse, because she'll be beholden to special interests who'll demand their 'pound of flesh' in return for their support.  I'm not sure whether Donald Trump will be able to do much better, but at least he's a businessman.  He understands profit and loss, and he understands the meaning of 'return on investment'.  If he's elected, I expect him to at least try to rein in rampant government overspending.  Whether or not he can succeed, when even his own party will be against him (because any cuts in spending will necessitate cuts in welfare and entitlement programs, which will make voters unhappy), remains to be seen.

I look at all these factors, put them together, and start to get really, really worried about the next few months.  Economically speaking, we're poised in a very delicate and unstable balance.  One more shock to the system might topple the whole thing . . . just like this.

What can we do to prepare for it, just in case?  I wrote about that some time ago, and most recently here.  I see no reason to change any of that advice.  Whether we're prepared or not, it's likely to be a wild and uncomfortable ride.



JWM said...

Celebrating Labor Day.
40 years ago I was doing exactly what I am doing today: pushing a broom on the night shift for a local school.
On that wage in 1976 I was renting a nice house in a good neighborhood. I was buying a new car ('74 VW). I had money for food, car insurance, surfboards, wetsuits, restaurants, weed, and beer. I was even building a modest savings account.
Today I make roughly three times as much money. Obamacare takes away over a thousand a month. My net paycheck, just over 2K, would barely cover rent on a shitty apartment. I would have less than a thousand dollars left to make a car payment, pay for insurance, and buy food. In other words, I couldn't make it without working a second job.


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JK Brown said...

Captain Capitalism posted a scary metric today, Rail Car Loads. Take a look at the data for 2016 compared to recent years. As he points out, this is a metric that is not easily manipulated by the BEA.


Anonymous said...

I've noticed the same around here. I've noticed utility companies taking longer to repair broken lines. City parks taking MUCH longer to replace light pole bulbs. Water leaks being allowed to stay damaged for longer periods.

Store shelves - much less choice and the aisles have been widened to hide the fact that less units are stocked. And what used to be stored in back is no longer done - what you see is what you get.

lee n. field said...

We've been "soft failure" for a long, long time. Anyone who talks about "the recovery" is either delusional, whistling optimistically in the dark, or deceptive.

The comment about store shelves -- I hadn't noticed that, but I'll watch for it. But, we've all seen the way packaging has changed, to make things look like more than they are.

SiGraybeard said...

I'm deeply suspicious of the "income inequality" numbers because they tend to come from the same statistics that (as Captain Capitalism said) have been violently raped by Washington DC economists. Which is not to say there's no such thing as income inequality; there is and has to be inequality in a normal, functioning economy. There is absolutely something there, as JWM points out in the first comment.

The two questions are how big and how come? The second is easier to answer: the decrease in buying power in the last 40 years is from the actions of the Federal Reserve and the fake currency they pass off as money. The Fed relies on those violently raped statistics to do what they do. They're the ones who create the 8 to 10% inflation every year while saying it's under 2%; they're the ones who engineered the system to benefit the bankers, stockbrokers and other portions of the "elite ruling class" at the expense of wage earners and savers.

The Fed couldn't do it without the knowing cooperation of the government, and they do it to keep the free sh*t flowing for the parasitic class. That nest of vipers (the Fed and the Fed.Gov) has to be gotten rid of - somehow.

Anonymous said...

I use a very simple method of gauging inflation. I call it the Campbell's index, and it confirms your statement about the dollar having lost 50% of its purchasing power since 2006.

Simply walk into your local supermarket and find the soups aisle, and locate the tag for a can of Campbell's tomato soup. In 2006, it could be bought in the range of $0.44 (on sale) to $0.75. Now? You'll be doing well to find that range as $0.90 (on sale) to $1.50.

I've been using this index since the 1970s when the soup was ~$0.20.

Ed McLeod
I'm not a robot - I'm more than meets the eye.

Will said...

ISTR that you could fill a standard size shopping cart for less than $20 around '72-'73. I think that was six bags. Now, you couldn't fill one of those bags for that cost. Ten years earlier, Cokes (in bottles) were $.05-.06 each, depending on whether you were buying from a machine, or a store clerk.