Dangerous Economic Misconceptions

For many years, economics in the U.S. has been approached with a ‘game show’ mentality. Wild and backwards speculations on financial growth have become the norm. The daily ‘Wall Street Journal’ and ‘Washington Post’ musings of international bankers and their servile lackeys are treated as divination, rather than the bamboozle they actually signify. If you play along and contribute to the mechanics of the great casino, then you are treated as a “serious” economist or analyst, regardless of how many times your advice has been completely off the mark, or how many middle-class nest eggs you destroyed in the process. If you question the conclusions of the pundits and talking heads, or, God forbid, question the validity of the system itself, you are immediately marginalized as a “kook” or “conspiracy theorist”. The workings of the mainstream financial world are more inbred than Hollywood and Washington D.C. combined.

Cable news providers like MSNBC and CNN have set the American people up for fall after fall; sometimes because they were blinded by their own bells and whistles, sometimes because they deliberately and blatantly lied in order to create engineered market sentiment. In the wake of the initial credit market collapse of 2008, these people, who didn’t see it coming and denied it was happening, still have their jobs, still have their TV shows and news columns, and, are still generally blowing smoke up our posteriors.

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Death By Globalism

Economists Haven’t Got a Clue

Have economists made themselves irrelevant? If you have any doubts, have a look at the current issue of the magazine, International Economy, a slick publication endorsed by former Federal Reserve chairmen Paul Volcker and Alan Greenspan, by Jean-Claude Trichet, president of the European Central Bank, by former Secretary of State George Shultz, and by the New York Times and Washington Post, both of which declare the magazine to be “ahead of the curve.”

The main feature of the current issue is “The Great Stimulus Debate.” Is the Obama fiscal stimulus helping the economy or hindering it?

Princeton economics professor and New York Times columnist Paul Krugman and Moody’s Analytics chief economist Mark Zandi represent the Keynesian view that government deficit spending is needed to lift the economy out of recession. Zandi declares that thanks to the fiscal stimulus, “The economy has made enormous progress since early 2009,” an opinion shared by the President’s Council of Economic Advisors and the Congressional Budget Office.

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What You Will Not Hear About Iraq

Iraq has between 25 and 50 percent unemployment, a dysfunctional parliament, rampant disease, an epidemic of mental illness, and sprawling slums. The killing of innocent people has become part of daily life. What a havoc the United States has wreaked in Iraq.

UN-HABITAT, an agency of the United Nations, recently published a 218-page report entitled State of the World’s Cities, 2010-2011. The report is full of statistics on the status of cities around the world and their demographics. It defines slum dwellers as those living in urban centers without one of the following: durable structures to protect them from climate, sufficient living area, sufficient access to water, access to sanitation facilities, and freedom from eviction.

Almost intentionally hidden in these statistics is one shocking fact about urban Iraqi populations. For the past few decades, prior to the U.S. invasion of Iraq in 2003, the percentage of the urban population living in slums in Iraq hovered just below 20 percent. Today, that percentage has risen to 53 percent: 11 million of the 19 million total urban dwellers. In the past decade, most countries have made progress toward reducing slum dwellers. But Iraq has gone rapidly and dangerously in the opposite direction.

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Deceptive Economic Statistics

While Economists Lied, the Economy Died

On August 17, Bloomberg reported a US government release that industrial production rose twice as much as forecast, climbing 1 percent. Bloomberg interpreted this to mean that “increased business investment is propelling the gains in manufacturing, which accounts for 11 percent of the world’s largest economy.”

The stock market rose.

Let’s look at this through the lens of statistician John Williams of shadowstats.com.

Williams reports that “the primary driver of a 1.0% monthly gain in seasonally-adjusted July industrial production” was “warped seasonal factors” caused by “the irregular patterns in U.S. auto production in the last two years.” Industrial production “shrank by 1.0% before seasonal adjustments.”

If the government and Bloomberg had announced that industrial production fell by 1.0% in July, would the stock market have risen 104 points on August 17?

Notice that Bloomberg reports that manufacturing accounts for 11 percent of the US economy. I remember when manufacturing accounted for 18% of the US economy. The decline of 39% is due to jobs offshoring.

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John Williams: Times That Try Our Souls

When Fed Chairman Ben Bernanke admits to seeing an “unusually uncertain” economy ahead, it's pretty terrifying to imagine what he's really thinking. What John Williams envisions—and he’s by no means looking to the far horizon—is a systemic collapse, a hyperinflationary great depression and the cessation of normal commerce. Despite that bleak outlook, however, when the economist and editor of ShadowStats.com sat down for this exclusive Energy Report interview, he also had some good news.

The Energy Report: A few months back, John, you said, “if you strangle liquidity you always contract an economy and deliberately or not, liquidity is being strangled, resulting in sharp declines in consumer credit, commercial and industrial loans.” Does this mean it would spur more economic growth if banks actually started lending?

John Williams: It sure wouldn’t hurt. We’re still seeing contractions in liquidity, and that’s adjusted for inflation. In real terms, M3* money supply is down almost 8% year-over-year. It's the sharpest fall in the post -World War II era. It’s not so much the depth of the decline in the liquidity or the duration, but the fact that the liquidity turns negative year-over-year that signals the economy turning down.

We had the signal in December of 2009 indicating intensification of the downturn, in this case, within six to nine months. We’re in that timeframe now and see softening numbers. People are talking about a weaker economy. Even Mr. Bernanke has described the economy as “unusually uncertain” in terms of its outlook. Wording like that from the Fed is a pretty good indication that something's afoot.

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“Do the Rich Even Need the Rest of America Anymore?”

Robert Frank at the Wall Street Journal contends that the rich don’t need the rest of us all that much (hat tip reader Don B):

Late last year, the U.S. economy experienced a surprising decoupling.

As stocks boomed, the wealthy bounced back. And while the Main Street economy was wracked by high unemployment and the real-estate crash, the wealthy–whose financial fates were more tied to capital markets than jobs and houses– picked themselves up, brushed themselves off and started buying luxury goods again.

Who knows what the next few months and years will bring. But one thing seems clear: the economic fate of Richistan seems increasingly separate from the fate of the U.S.

Some argue that the decoupling has gone even further. Michael Lind, a policy director for the Economic Growth Program at the New American Foundation, argues in Salon that the American rich no longer need the rest of America.

He says the wealthy increasingly earn their fortunes with overseas labor, selling to overseas consumers and managing financial transactions that have little to do with the rest of the U.S. “A member of the elite can make money from factories in China that sell to consumers in India, while relying entirely or almost entirely on immigrant servants at one of several homes around the country.”

This is an interesting line of PR. To the extent those at the top of the food chain believe it, and better yet, can get the great unwashed to buy into it, the more they will be able to get their way.

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The Real Unemployment Rate: Is It 9.5%, 16.5%, 22%, or Higher?

Raghavan Mayur, president at TechnoMetrica Market Intelligence, follows unemployment data closely. So, when his survey for May revealed that 28% of the 1,000-odd households surveyed reported that at least one member was looking for a full-time job, he was flummoxed.

“Our numbers are always very accurate, so I was surprised at the discrepancy with the government’s numbers,” says Mayur, whose firm owns the TIPP polling unit, a polling partner for Investors’ Business Daily and Christian Science Monitor. After all, the headline number shows the U.S. unemployment rate today is 9.5%, with a total of 14.6 million jobless people.

However, Mayur’s polls continued to find much worse figures. The June poll turned up 27.8% of households with at least one member who’s unemployed and looking for a job, while the latest poll conducted in the second week of July showed 28.6% in that situation. That translates to an unemployment rate of over 22%, says Mayur, who has started questioning the accuracy of the Labor Department's jobless numbers.

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The New Doom

“Life is such a fucking disaster,” a prominent New York hedge fund manager said recently. “We all live in some kind of world we create for ourselves. And I think that what happened is that built into that world were very enlarged expectations about what life was going to be. There's been this sensation of excessive expectation that, frankly, became unsustainable."

He had just returned from his ranch in the wilderness of central Idaho. “I just like it because it’s massively low human density. It would be a place you could hole up in. But, gosh, I hope that doesn’t happen.”

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58% of Real Income Growth Since 1976 Went to Top 1% (and Why That Matters)

If you have any doubts about how easy it is for someone who works hard in the US to get ahead, consider this factoid from Martin Wolf’s latest comment in the Financial Times, on Raghuram Rajan’s new book (see Satyajit Das’ review here: )

Thus, Prof Rajan notes that “of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households”.

It isn’t merely stunning, it’s destructive.

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College Students This Is Your Future: High Unemployment And Student Loan Hell

Hundreds of thousands of college students all over the United States have just graduated and are getting ready for their first taste of the real world. Unfortunately for them, the real world is not always easy and it is not always fair. In fact, for large numbers of recent college graduates, the transition to a world of high unemployment, brutal student loan payments and lowered expectations can be extremely sobering. But the truth is that we have taught these young people to have a completely unrealistic view of the future. We have told them to take out gigantic student loans without worrying about how they are going to pay them back, we have told them that if they get good grades and do everything “right” that the system will reward them with secure, fulfilling careers, and we have made high school and college so “soft and cushy” that most of these young Americans find that they don’t have the discipline and the work ethic to make it when they actually do get out into society.

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