Rod Dreher

What The Chinese See That We Don’t

Miserabilism Rides Again

By Rod Dreher • January 22, 2013, 12:31 PM

Well, it’s been a long time since I’ve indulged in economic apocalypticism in this space. Here it is: short, strong, and oh-so dark and bitter. Excerpts:

We are nearing the end of a period of 250 years in which growth has been the assumed normal. And, without action, this will have stark implications for the economies of the West.

Most remarkable was that this lasted for so long, in defiance of logic. And a spendthrift public had nothing on policymakers. Gordon Brown declared the end of “boom and bust” and gloried in “growth”, despite expansion being nothing more than the spending of borrowed money. Between 2001-02 and 2009-10, Britain added £5.40 of private and public debt for each £1 of GDP growth. Between 1998 and 2012, real GDP increased by £338bn, while debt soared by £1.1 trillion. No other country got it so wrong, but the same was happening across the West.

The compounding mistake was a belief that globalisation would make everyone richer. The problem was that the West reduced production without corresponding reductions in consumption. At constant 2011 values, US consumer consumption rose by $6.5 trillion (£4.1 trillion) between 1981 and 2011, while government consumption rose by $1.7 trillion. But the combined output of manufacturing, construction, agriculture and the extractive industries grew by $600bn. At less than $200bn in 2011, net services exports did little to bridge the gap. This left domestically-consumed services and debt. Talk of Western economies moving into services was waffle – consumers sold each other greater numbers of hair cuts and fast food, while increasingly depending on imported goods. The debts used to buy them also soared. Between 1981 and 2011, US indebtedness rose from $11 trillion to $54 trillion.

And:

The third trend – the massaging of economic statistics – may serve as explanation for why this happened. In the US, the benchmark inflation measure has been modified by “substitution”, “hedonics” and “geometric weighting” to the point that reported numbers seem six percentage points lower than under the calculation used until the 1980s. US unemployment excludes so many categories (like “discouraged workers”) that it hides higher levels of inactivity. The critical distortion is inflation. It feeds into calculations showing “growth”, when evidence from other benchmarks is that Western economies have stagnated for a decade. Distorted inflation also tells earners that they are getting better off, even when this conflicts with their own perceptions.

Read the whole thing. Is this analyst wrong? I miss our old economist commenter Pyrrho, who was a great help in sorting out false alarmism from scary fact.

(Via The Browser)

Posted in Decline and Fall, Economics. Tagged decline, economy, West.

39 Responses to Miserabilism Rides Again

collin says:

January 22, 2013 at 12:58 pm

I will settle for Cowen’s Great Stagnation as that was not economic doomsday. That said:

1) I believe the main reason for the latest economic crisis is the average wage for most competitive has been stagnant because the their wage premiums over countries has diminished. (ie US versus China.) This wage premium is fact declining and starting growth in other 3rd nations so now have more better off people. (Trickle down to other nations.)

2) The main long term fear is robots/computers will replace cheap labor (ie driverless cars replace taxi drivers) and the global birth rate is really declining. As Dean Baker suggest both trends logically cancel each other out. That said the creative destruction of both trends are not going to be pretty.

3) Although point 1 sort alludes to complaining about free trade, that in the long run creates a lasting peace. Think about the latest European economic crsis. No European nation is invading each other!
JLF says:

January 22, 2013 at 1:12 pm

Perhaps, inevitably, we’ll have something like a Jubilee Year, where all debts are forgiven and everyone takes his place at the starting line to begin the accumulation race once again. A horror to those who have something to lose; freedom for those who have nothing to lose. (Pace, Janis Joplin,)
EngineerScotty says:

January 22, 2013 at 1:26 pm

More often than not, when someone proclaims the sky is falling, it is little more than an acorn. But the Second Law of Thermodynamics does inform us that Ozymandias’ tomb must eventually crumble; one of these days some doomsayer will be right–though they might not be around to gloat about it.

As far as the article goes: Several of the items he is concerned about mainly have to do with the distribution of wealth. The last item–the increasing cost of energy, particularly were many existing energy forms to be curtailed in response to global warming, is probably of bigger concern–though it affects more than just the West.
JonF says:

January 22, 2013 at 1:38 pm

Yes, the analyst is wrong– unless he is posting from an alternate universe. Here are two very obvious mistakes:

1. The West has not “reduced production”. Outside some negative numbers from the downturn months, GDP has been positive, albeit not growing like wild. (And during the downturn months consumption also declined– in fact it has not recovered yet)
2. Inflation is as low as it has been since the Great Depression. Any time you start reading people screeching “Inflation!” in the contemporary US economy you can take what he says with a large grain of salt, as you are dealing with an ideologue who is making it as he goes along.
sd says:

January 22, 2013 at 1:50 pm

The point about metrics is bunk. The inflation measure used today is different from the one used 30 years ago because the old measure was dumb. The new metrics more accurately reflect the economic reality. Are they perfect? Probably not. But better. Yes, inflation would be “higher” under the old metrics. But that doesn’t mean the old metrics were “right” and the new metrics “wrong.” If inflation really were 6% higher than the reported numbers, in an environment of largely stagnant wages, then millions of households would be sliding into poverty every year (and would have been not just over the last 3-4 years of economic recession and slow recovery but also during the prior decade, when more folks than not thought things were generally pretty good). We are not in a “good” economy, but its nowhere near that bad.

The unemployment rate comment has some merit but actual decision makers (government and business leaders), as opposed to the general population of laymen, are not fooled. People who need to know what unemployment really is know.

And this selection is a bit silly:

“But EROEI has fallen, as discoveries have become smaller and more costly to extract. The killer factor is the non-linear nature of EROEIs. Once returns ratios fall below 15:1, there is a dramatic “cliff-edge” slump in surplus energy, combined with a sharp escalation in cost. And the global average EROEI may fall to 11:1 by 2020. Energy will be 50 per cent more expensive, in real terms, than today. And this will carry through into the cost of almost everything – including food.”

The non-linear thing is asserted without any supporting evidence. And I find it odd that he’s suggesting a a dramatic rise in energy costs, given the explosion of natural gas fracking (not just in the US but worldwide), the development of the Canadian oil sands and other global oil deposits, the growing interest in nuclear as a climate-change mitigation strategy, and the falling costs of solar. Yes, rising demand is putting upward pressure on energy prices, but energy efficiency is rising as well which alleviates some of that pressure.
sd says:

January 22, 2013 at 2:01 pm

I would add that while manufacturing employment is on the long-term decline in the developed economies, manufacturing output is reasonably healthy. We’re still making stuff, albeit more advanced stuff. But we’re using more factory automation and the value-add of the stuff we make is higher, which means we need far fewer workers to produce $1M of industrial output than we did in 1960.

That’s a problem from the standpoint of re-mobilizing millions of blue collar workers. A real problem. But that doesn’t mean that we don’t have a “real” economy. It means that our real economy is highly productive and thus not very labor intensive. The opposite end of the spectrum is India, where manufacturing is remarkably unproductive and thus employs lots of workers per dollar of output. Not exactly heaven on earth these days.

Given a choice of problems I’ll take our problem over India’s problem every day of the week. Because while productivity gains mean that we need to figure out a way to distribute the economic spoils in a just and socially healthy manner, those same productivity gains are the ONLY thing that improves living standards long term.
The Wet One says:

January 22, 2013 at 2:02 pm

sd,

With respect to the dramatic rise in energy costs, have you noticed the price of gasoline lately? I’m just curious… Are you aware what crude oil costs today vs. what it was 5 years ago or 10 years ago? Are you aware of the price at which fracking becomings feasible vs. unfeasible?

Consider these questions. I’m not saying that this apocalyptic piece is correct, I’m just asking you to consider the questions posed and where your consideration and analysis of the answers take you with respect to the question of energy costs.
Lord Karth says:

January 22, 2013 at 2:09 pm

Mr. Morgan, the author of the article, has partial points. He raises issues, true, but these are issues that may well be susceptible of solution.

The problem, as Neo said in The Matrix Reloaded, “is choice”. As in what policymakers choose to do to react to current conditions.

Mr. Morgan’s first issue is the debt bubble. The fact of the matter is, all the post-Western industrial economies got themselves into trouble running up debts that were not being backed by actual production. This problem, like others before it, can be solved by a combination of monetary inflation and reduction in the value of promises made to the beneficiary classes. This will take the form of allowing inflation to erode the value of the benefits, outright means-testing and, eventually, Eradication. In other words, a controlled and guided default, as opposed to an uncontrolled and catastrophic one. This will prove politically very difficult, but it is not conceptually impossible.

The second issue (yes, I am taking them out of order) is closely related to the first: massaging of statistics concerning GNP, unemployment and such. This is something of a bagatelle, as the productive segments of the electorates in the affected countries will pick up on the actual facts of the situation (through changes in the price signal) and eventually force their political classes to acknowledge the Reality of the situation. The political classes may even pick up on it themselves; they also directly interact with the economy through their own personal finances. We are seeing the emergence of real alternatives to State reporting of economic statistics, with firms like Shadowstats.com providing corrected (and correct) information to those willing to pay for it. The specific difficulty to be addressed here is exactly how much effort will be required to force the political classes to accept the real figures as real figures, and thus is part of the solution to the first identified problem.

Even the third problem is at least partially solvable by a return to realistic and real keeping of economic statistics. Globalization does work, for the most part. What Mr. Morgan fails to realize is that knowledge and skills, being valuable in their own right, are things that people will want to trade for. We see this in the international “medical travel” business; people go from one country to another to take advantage of disparities in the level of available medical talents/skills. Again, a functional price system will alert consumers to disparities in costs, and competition will, if allowed to ensue, maintain a leveling of costs.

The fourth problem can even be solved, with the correct policy choices. We know that energy is available, and in vast, vast quantities, from solar power, nuclear power and other non-carbon sources. The problem is that post-Western regimes have deliberately chosen not to pursue developing the technology that would allow the exploitation of these sources. Nuclear power has been available in reliable, usable forms (e.g. the small reactors that power US ships and submarines) for decades. Solar-power satellites have been technically feasible—requiring engineering advances, but not necessarily new science—for some 30 years. We could do these things, if we (collectively) chose to.

The fundamental problem underlying all four of these issues is that, as a species, we seem to have chosen not to do these things, for a variety of reasons. There are a whole congeries of reasons for this, but I would start off with these: a) the extension of the voting franchise to the non-productive beneficiary classes, which induces a permanent and deliberate bias in favor of direct and immediate consumption at the expense of production, a/k/a the Provider State; b) an excessive sentimentality and bias towards equality of economic outcomes on the part of the political classes, which reinforces the imbalance caused by the unlimited franchise, and c) a media environment that is, simply put, not conducive to rational thinking about any issue. Our public discourse has been conducted by and through visual media for the last 50 years or so; it is well-known that visual media (as Postman, Lukacs, Boorstin and others point out) emphasize emotion and deliberately-created illusion at the expense of rational thought and depiction of real events.

As long as these three factors remain dominant memetic forces within our societies, Mr. Morgan’s prediction may well come to pass. In fact, I would even go so far as to say that we are well along that path, and that stagnation may be the lucky outcome, especially in “multicultural”, tribalistic societies like the current US. But I do not claim that it is theoretically imposssible for said societies to change their tracks, absent some truly catastrophic, change-wreaking event.

I just flatly refuse to bet more than a small amount that way.
$ 1.85 sounds about right.

As Neo put it in the movie: “The problem is choice.”

Your servant,

Lord Karth
Sam says:

January 22, 2013 at 2:16 pm

The editor of that website is your typical Austrian, so it’s no surprise this article is irrationally whining about inflation.
Jack Shifflett says:

January 22, 2013 at 2:19 pm

“Miserabilism” is never out of favor and never out of place. It provides an excellent corrective balance to irrational exuberance. We should never take a dose of one without a dose of the other.
Siarlys Jenkins says:

January 22, 2013 at 2:25 pm

The problem was that the West reduced production without corresponding reductions in consumption.

True enough, but certain brands of “conservative” (not the ones prevalent at TAC) have cynically used this to allow wealthy corporations to reduce production here, increasing it abroad, then import the production to sell to the impoverished masses who can only lower consumption so far, then complain about the increasing strain on government safety nets.

To the extent that the health care reform increases the costs of government subsidy to health care coverage, this is a subsidy of employers who pay too little in wages, or, a subsidy of larger outfits offering bids to subcontractors in cut-throat markets who have to keep wages low and not offer health care benefits.

How about a law that the lowest paid employee in any enterprise, or chain of subcontracting, will be paid no less than 1% of the annual total compensation of the top CEO in the chain? That will lower CEO pay more than it will raise hourly wages, but the excess money will either increase wages across the board, or it will be invested in something more productive.

And, of course, we need to put some effort into creating productive jobs that can’t be exported, until wage demand in India, China, Vietnam, and Congo are up to the same level as in the USA. That will happen, but we can’t wait for it.
JonF says:

January 22, 2013 at 2:35 pm

Re: have you noticed the price of gasoline lately?

Yes, it’s 3.33 as of this morning just up the road from me. It’s been fluctuating (where I’ve lived) in the range of $2.49 to $4.09 since 2005. Am I happy about that? No. Is that evidence of galloping inflation? Also no.

Re: the unemployment rate. I’ll agree that the stats leave some things out, but that’s been true from the start. So if you are making long range comparisons about unemployment those numbers have the same slop in them across time. In fact the changes that were made in the 1990s addressed the fact of undercounting some unemployed people by introducing a new statistic, U6, which includes both the part-time employed (who say they want full time work) and the discouraged workers. That’s always a good number to check as well as the headline number. But you can’t compare today’s U6 to, say, 1970′s U3– that’s apples to oranges.
Nick K. says:

January 22, 2013 at 2:43 pm

JonF, does GDP really provide a meaningful measure for production? Much of the so-called production which helps to create GDP figures is in fact make-work activity in office jobs which don’t lead to anything real. Is it possible the analyst cited above was referencing the fact that Western countries have steadily decreased the amount of real things- that is, physical goods- that they produce, while simultaneously turning to non-Western (and often adversarial) countries to buy those things?

If you really accept GDP figures as proof that we’re humming along economically, then it seems you’re drinking some laced koolaid.
Josh says:

January 22, 2013 at 2:50 pm

Building off SD’s comment:

It’s easy to just think of physical goods as the only source of real production, but they’re simply a layer of abstraction of all the hours of value added by the people extracting and transporting the raw goods, designing and producing the fancy products, and then selling them to us. Similarly, currency is an abstraction layer for what you’re really trading, your time.

As we get more efficient, we spend less time doing tangible physical work, leaving us more time to do fun, creative sorts of things. Society keeps marching forward, and life gets better! There’s also though a couple of potential looming pain points, wealth inequality and skills mismatch. Skills mismatch…it’s a terrible thing for those trapped in it, but with proper educational investment is ultimately a generational issue.

Wealth inequality is the bigger issue. We keep getting more efficient at extracting efficiency, and as Warren Buffet said, all of his money is essentially claim cards on other people’s time. There are huge diminishing returns on this wealth, and when it gets aggregated you liquidity disappears from the economy…Warren Buffet only needs but so many dinners and haircuts. A big problem with makers and takers meme is that everyone makes and takes. A Randian “maker” may better be thought of as an efficiency creator, and thank God for those visionaries. If you believe Bill Gates deserves to accumulate and keep all the time he’s saved, so be it, but that’s an approach which leads to radical wealth accumulation, and is also decidedly un-Christian (see: rich young ruler).

Fundamentally, there’s still more than enough time to go around, so we’re fine. As long as people do things which are valuable to other people, we’ll keep trading and moving forward. We’re get in trouble with government borrowing because we’d rather extract the the quality of life gains we expect from our kids and grandkids, instead of having harder conversations about equality. We get in trouble when we stop being a society.

Damn it, I think I just talked myself into watered-down Marxism.
alkali says:

January 22, 2013 at 3:48 pm

1) When considering apocalyptic predictions about the economy, remember that the US GDP is about $15 trillion annually and the world GDP is about $70 trillion annually. (Stated somewhat differently: every 14 years, the world generates about a quadrillion dollars of wealth.) This should provide some perspective around concerns about debt, inflation, allocation of consumption, etc. It’s true that in the short-term, and to particular individuals, recessions and depressions can cause a lot of harm. In the very long term, however, those mismatches will get worked out.

2) More reasonable apocalyptic concerns might include the following:

a) Environmental disaster, particularly climate change

b) Resource constraints, like topsoil loss and peak oil, a subject that this author comments on

c) Limits to technological growth (Cowen’s “Great Stagnation”) — although I personally think we’re just beginning to explore what we can do with advanced chemistry, genetics, and lots of computing power

d) Economic inequality — for most of the 20th century, in industrial society, there has been lots of work well suited to 80-90% of the population, which has facilitated the growth of a large and wealthy middle class; if that number were to drop even to 60%, our society could look very different
Edward Hamilton says:

January 22, 2013 at 3:58 pm

No one is gloomier or doomier than I am about the future of economic growth, and I fully expect that 1.5% real GDP annually will be our average for the next few decades or so, throwing all sorts of optimistic budgeting projections into tragicomic disarray. But the Shadow Stats-esque inflation complaints continue to raise red flags for me. If inflation were really running around 7%, then the doubling time for prices would, on average, be about a decade. If prices doubled every decade, then lobsters that went for $10 in 1990 would be going for over $40 today. If I can still buy a lobster for $15, that tells me that “hedonistic adjustments” or “chaining” aren’t really responsible for the low inflation rate that’s currently reported.

There’s literally no good or commodity I can identify that has inflated at the rate predicted by these kinds of doubling times. Not steak, not bread, not electricity, not clothing, not anything. Sure, education and health care have exploded, but not as a monetary phenomenon. Those industries are actually trying to offer a much larger suite of services (rec centers and extra administrators at colleges, batteries of new tests and medications at hospitals).

To me, the ground for economic pessimism isn’t based on the fact that we’re already in a state of permanent negative growth masked by inflation. It’s the fact that we’re currently in a state of barely positive growth, and about to tip over a crucial psychological boundary where we admit that the suppression of “normal” 3-4% growth over the last 12 years was not an anomaly, but a sensible forecast for the foreseeable future that will only get worse.

If anything, I think we’re stuck in a deflationary trap due to consumer credit unwinding that will justify the dour spirits of the Austrians, but in exactly the opposite of the hyperinflationary ways that they continue to insist everything will unravel.

There’s also the fact that all the Bakken shale within 20 miles of the surface won’t power more than a few years of that kind of growth in China, but I realize that energy concerns are going to invite nothing but mockery until the next time gas goes to $5 a gallon and everyone oscillates madly back to panic mode again. Human psychology just wasn’t designed with a long enough outlook to cope with the fluctuations that mask these kinds of grinding downward trends.
Church Lady says:

January 22, 2013 at 4:27 pm

sd’s comments are great.

I would also add that as far as unemployement stats go, if you question all these categories and their exclusions, the one stat you can always look at is the total employment as a percentage of the total population.

http://en.wikipedia.org/wiki/Employment-to-population_ratio

From this, you can see that total employment fell abruptly from about 71.5% in 2005 to 66.7% in 2010. That corresponds to about the same 5% change in the reported unemployment rate in those years. So the unemployment stats seem fairly consistent with actual employment, and not a fantasy. It also says that we are still seriously in need of greater employment.

It’s also interesting to look at the variations in employment from other countries. Those Scandinavians seem to be working especially hard.
Church Lady says:

January 22, 2013 at 4:28 pm

I should have said “total working age population”.
Church Lady says:

January 22, 2013 at 4:32 pm

Unlike the gloom and doomers here, I think our current stasis is temporary, and that economic growth will be quite high in the years to come, especially around the world, as technology becomes more and more efficient. The US needs to scale back its global military expenditures, and recognize that it will decline in relative strength as the world around us grows to catch up, but that doesn’t mean we will actually decline in absolute numbers. We will grow also, just not as robustly as others will.
Fran Macadam says:

January 22, 2013 at 4:37 pm

What prices have fallen by half, pray tell, to offset the actual doubling of prices in stores and supermarkets over the last ten years? What a nonsensical claim that there is no price inflation, supposedly offset for the corporate sector by countervailing wage cuts for the 99%?

A seven per cent inflation rate is about what it is, outside those annual 30% “insurance” and tuition bubbles.
Church Lady says:

January 22, 2013 at 4:38 pm

As for laws governing wages, I sympathize with Siarlys’ notion of limiting the CEO/lowest wage ration to 100:1, but I think that’s arbitrary and probably counter-productive. What I would prefer to see is a complete change in our labor/management relations, something similar to what they have going in Germany, with huge success. There, all large companies have unions, and all unions have significant representation on all corporate boards, mandated by law. This forces workers and management to work together for the bests interests of the company, rather than in opposition to one another as competing interests. One can hardly argue that this has impeded Germany’s economy, and could very reasonably argue that it’s a big factor in its economic success.

Of course, the political opposition to this would be enormous. Even in dire economic times, Americans don’t seem to even think about such options.
JonF says:

January 22, 2013 at 4:39 pm

Re: JonF, does GDP really provide a meaningful measure for production?

It’s the only reliable number we have. I’m willing to credit that there’s some slop in it, and some reason to carp about the edges– but overall it’s in the ballpark. Moreover if GDP is wrong today, it was just as wrong 30 or 50 years ago– so comparisons using GDP have the same uncertainty about them, canceling out.
Nor would I say we are “humming along”. In fact, as with several other posters, I find Tyler Cowan’s Great Stagnation has a good case going for it. But please did note: we are suffering from minimal growth– but it is not negative.
And one more caution: one of my biggest complaints with the contemporary Right is its habit of making up its own numbers when the objective figures do not support its position. (And if the Let does that, I gold them in just as much contempt). You have a right to your opinions- but not to your own facts.
Lies and Damn Lies says:

January 22, 2013 at 4:46 pm

“The third trend – the massaging of economic statistics –”

Miraculous isn’t it? That they could calculate away inflation and unemployment? This “third trend” is the most sinister of all. Without real numbers – “truth”, to use the old-school, prosaic word – you don’t know what to fix.
Jmo says:

January 22, 2013 at 5:19 pm

What prices have fallen by half, pray tell, to offset the actual doubling of prices in stores and supermarkets over the last ten years?

In the past 6 years home prices fell by 1/3. People spend a third of their income on housing and less than 10% on food.

Also, I was a grocery store cashier in college – prices haven’t double since then.
Jmo says:

January 22, 2013 at 5:28 pm

Also, as for inflation over the past 10 years. A 2003 Toyota Camry LE had an MSRP of $19,045. A 2013 Camry has an MSRP of $22,680.
sd says:

January 22, 2013 at 5:49 pm

Jmo wrote:

“Also, as for inflation over the past 10 years. A 2003 Toyota Camry LE had an MSRP of $19,045. A 2013 Camry has an MSRP of $22,680.”

And I would point out – the 2013 car is much better. It gets better mileage. Its more reliable. Its safer. It has better fit and finish. And a host of features (many but not all electronics) that didn’t exist in 2003. And this is not some weird Toyota Camry thing – virtually any make and model of car has similarly improved in the last 10 years. The wealthiest man in the world in 1975 could not have bought a car at any price point more reliable than a Toyota or Honda sedan is today. And the wealthiest man in the world could not have bought any car at any price point that was better on virtually any meaningful dimension than a $40,000 Lexus is today.

The “hedonic” adjustments to the old methodology of calculating inflation try to capture phenomena like this – that certain categories of good deliver far more value for the money over time. As categories of manufactured goods mature over time the constant-dollar cost of producing them falls. In other words, Toyota could manufacture Camries under the 2003 design for a much lower cost now than they could then.

It is sometimes difficult to see this effect in consumer markets because most manufacturers choose to “bank” the improvements in cost position by increasing the value offered per price point rather than by lowering prices. So you get a 2013 Camry that is a much better car than the 2003 Camry for only a little bit more in sticker price. There are sometimes exceptions to this. VW actually manufactured the original Beetle in Mexico until relatively recently, and by the end of the run it was a ridiculously cheap vehicle in that market. But most of the time producers choose to ratchet value up rather than ratcheting price down.

And that’s not even addressing pure electronics products like computers and cell phones. Each of us is probably typing out their comments on a device with more computing power than a 1980s era supercomputer.
sd says:

January 22, 2013 at 6:06 pm

The difficulty in these discussions is that over time some categories of goods and services get structurally more expensive and some get structurally less expensive.

Take our blog host. As a middle class family man living in the deep south, he could have likely employed one or two full time domestic servants in 1935 (Hell – maybe in 1970). Its not a bad thing the earning power of southern whites and southern blacks has converged to the point where it is no longer affordable for a middle class white man to employ (overwhelmingly black) full time domestic help. But it does reflect massive price inflation for domestic services.

But he can fly his family to Paris (a splurge perhaps, but not a break-the-bank splurge). This would have been more or less impossible for a middle class man in 1935 and prohibitively expensive in 1970 (and that’s before the run-up in petroleum costs). This reflects massive price deflation for air travel.

It is disappointing to me (as a Chicagoan) that I have to pay through the nose to get a modest house in a decent neighborhood. But I don’t think I would trade places with even a circa 1990 peer who had no internet, no access to half of the amazing food and wine from around the world that I can buy at any of dozens of stores, a (relatively) shitty car, etc.

Our children will be priced out of the market for things we consider a part of daily life. And they will be able to afford things that are exotic luxuries today. And some things that don;t exist today will commonplace. Such is life.
Don Quijote says:

January 22, 2013 at 6:14 pm

It also says that we are still seriously in need of greater employment.

What’s needed are shorter work hours (30 hour work week & 4 weeks paid vacation) and higher wages…
alkali says:

January 22, 2013 at 7:07 pm

A 2003 Toyota Camry LE had an MSRP of $19,045. A 2013 Camry has an MSRP of $22,680.

(22680/19045) ^ 1/10 = 1.0176… = 1.76% annual inflation.

(Obviously, to calculate a proper inflation statistic, you need a lot more data points than a single car, but this is illustrative.)
Noah172 says:

January 22, 2013 at 7:22 pm

And, of course, we need to put some effort into creating productive jobs that can’t be exported, until wage demand in India, China, Vietnam, and Congo are up to the same level as in the USA. That will happen, but we can’t wait for it.

Or, heaven forbid, we could revive the protectionist policies of yore, which other countries, notably China, still use to their enormous benefit. That, and stop importing foreigners to do what non-exportable jobs we have left.
Duncan in London says:

January 22, 2013 at 8:08 pm

Argh. I’m always late to these discussions. Fortunately there seem to have been a lot of sensible comments already. Things aren’t perfect but there won’t be an apocalypse (unless it’s caused by climate change or, you know, Heaven). I believe the following:

1. Inflation and GDP figures are not made up and are not crazy. Ultimately people need to decide whether there is a massive global conspiracy/delusion of economists or not (there isn’t).
2. Total US debt is coming down. Yes, down. That is, you’re deleveraging. Well done. (We Brits aren’t). Total debt is Govt+State+Household+Business. Total is the important number.
3. Government debt in the US is still going up (that’s the “scary” $16trillion bit), but that’s part of the process, passing some private debt to the public sphere. It’s not fair, but it’s the sensible thing to do largely.

This chart by the Economist shows all that quite clearly (click on the US). You’ll see the US looks OKish and the numbers are coming down slowly but (I think) surely. We Brits look awful because of the City of London.

This page on Wikipedia simply entitled “Financial position of the United States (Debt)” shows the same data but presented slightly differently (due to double counting in Financial sector) and only up to the peak in 2009. Europe has problems because it’s not yet clear we can deleverage. I think you Americans can. That’s the Short Run. In the Long Run, as they say…
jon s says:

January 22, 2013 at 8:55 pm

Whether this is 100% true or not, it’s clear we are moving in the wrong direction on both spending and revenue (the polite way of saying taxes in mixed political company).

The true problem is that the party we could have been previously relied on to address this problem no longer has any credibility after Bush 1 and particularly 2. Even Reagan had a bad spending record.

So as a voter if your choices are: Party A that spends a lot of money but has a better record caring for people, or Party B that spends a lot of money and whose candidate surreptitiously/openly dismisses nearly half the country as freeloaders, it really isn’t much of a choice.

I think eventually the right is going to realize the “brand damage” wrought by supporting Bush 2 for two terms was a mistake they may not be able to heal for a generation. Throw in the Rovian strategic nastiness and the Obama presidency looks like a veritable pax Americana.
JJM says:

January 23, 2013 at 3:16 am

I’m late to the party, but my thoughts on the linked article:

The stuff at the end about an impending collapse due to oil shortages is bunk. The developed world is actually using less energy per capita than before, and developed populations are additionally not growing. These two things mean that other countries are soon going to get news like the US did in 2010 or 2011 (I forget which) wherein total energy use actually drops.

Infrastructure-electricity is switching to more efficient oil-derived methods and non-oil methods. That combined with higher efficiency on the part of consumers means that electricity is going to be as abundant (if not more so) in the future. Liquid fuel, which is uniquely necessary for transport for the next few decades, will be a tougher problem, and this may actually cause some market disruption, but certainly not collapse.

Developing populations are using more energy (and buying more oil) than before, but their contribution to the world economy is also more marginal. If they get squeezed, that means a local problem for transport, a labor problem for multinationals, and missed development goals, but none of those things are going to trigger a systemic collapse.

That’s my main gripe about the article. However, the main thrust of the article is still correct. We’ve been fooling ourselves with regards to our past and present economic performance, by faking “objective” measurements, by severely distorting our home economies with financial trickery, and by abusing our currency.

The data regarding public debts is truthfully reported, and the amounts specified here present something of a political conundrum for those in the DeLong/Krugman camp. To “inflate away” debts this large would seriously wound home economies (to say nothing of the human suffering it would inflict). The sort of inflation that occurred during Stagflation wouldn’t even begin to make a difference, absent actual government budget surpluses.

The data regard personal debt is even worse, because individuals cannot “inflate away” debt in any meaningful sense. “Inflation” for individuals means being able to constantly find higher-paying work, or getting inflation-beating raises every year, and I don’t even have to make an effort to show how unrealistic that is. Essentially, we’re going to enter a stage of economic development wherein the primary personal debt discharge method is death. And I won’t be a single bit surprised if there’s serious effort to re-assign the debt of deceased people to living ones, either by directly applying it to relatives or by using the state to cover it.

The abstract nature of our currency (which I don’t actually have a problem with; I don’t support a materials-based currency) means that finance holds a special power, that is right now unchecked by government or the consciences of its actors. Most, and I mean almost all, of finance’s activities are not productive in any real sense. The internet has largely overtaken the “opportunity sniffing” and “efficiency finding” functions that finance once performed. Anyone with a few hours, a computer and the ability to read English can do the sorts of research that finance used to do in order to make the market a better place. However, because of finance’s special power, compensation has not shrunken accordingly. So, you have the most talented people in the country going to work in the least productive sector.

The crisis in the making isn’t an apocalyptic, post-energy scenario where we all live like in Waterworld or Mad Max, but rather a scenario in which whole societies are indebted, find they can’t pay it back, and have long ago forsworn productive economic work. Detroit used to be the center of heavy industry, an activity that spawned some of the best education institutions in the world, sponsored a beautiful flowering of culture, and held significant political weight. Right now, I bet the largest growth industry in Detroit is “localvore” food production. A gentle name for subsistence farming. The rest of the Rust Belt is in a similar position. If we trade heavy, goals-based industry for industries which require little education, coordination, and no goal after survival, we as people are going to change accordingly, and that’s the real problem.
JJM says:

January 23, 2013 at 3:49 am

As a last point, the assertions about “growth” fixing everything in the long run (which has even seeped into the political discourse in the last few years) neglects how economic growth occurs. Either the population doing productive work is, itself, growing; or productivity per worker grows. In the past, we’ve had both a growing population and very large increases in per-worker productivity. Now, populations are stagnant, so that removes one source of growth. We still have per-worker productivity gains, and they will even be larger than in the past, probably. But will productivity alone provide enough growth to negate debt service, and especially the expectation that new credit will be available indefinitely? That, I’m not so sure about.
M_Young says:

January 23, 2013 at 4:16 am

“Re: JonF, does GDP really provide a meaningful measure for production?

It’s the only reliable number we have.”

Jesus H Christ. GDP means zero. **Per Capita** GDP might mean something, but GDP means nothing as far as quality of life is concerned. I am sure India’s GDP dwarfs that of Norway. But Norway is, by measures such as the HDI, a much pleasanter place to live.

It’s like the US — we could import every single Bangladeshi. And have them do exactly what they are doing now. GDP would go up. Per capita GDP, and quality of life, would go down.

As for sd’s techo-libertarianism. I’l answer tomorrow.
mm says:

January 23, 2013 at 7:51 am

Jon S- Rovian nastyness ? Rove is a mere piker compared to the O’s campaign. The Obama campaign’s only feature was to demonize Romney-”he is not one of us” etc. if you think GWB was bad on spending, then Obama is Bush on steroids. All the negative features of GWB are worse with Obama(except we do not start wars we merely ensure we lose them by precipitous & unprincipled withdrawals) plus we double down on cronyism & dirigistism.
jon s says:

January 23, 2013 at 11:59 am

MM, Obama is a big spender, but it is expected. However if a party defines itself by fiscal restraint, and then their last leader failed that standard, what does the party stand for? The decision for voters is muddled. The worst damage W did to his party long term was on spending– not starting wars, foreign or cultural, as misguided as those were too.
JonF says:

January 23, 2013 at 5:34 pm

m_young,
Changes in GDP do show us something worth knowing. GDP goes up, the economy is growing. GDP goes down, we have a problem.
Siarlys Jenkins says:

January 24, 2013 at 11:38 pm

mm: Romney is NOT “one of us.” As my mother, the Republican in the family, said more than once, “I don’t like the way he made his money.” My mother worked as an industrial engineer for many years, and watched productive companies that made a good product ruined by the kind of financial manipulation that Mittens has come to epitomize. Soon there was no product, no production workers, but a lot of financial services being bandied about, after spending the prudent cash reserves the previous owners had built up, to pay off the junk bonds used to finance the takeover. Romney in politics and economics is the antithesis of everything decent and sustainable in America. I have no doubt he is a good family man and a contributor to his community in his private life — when he steps beyond the walls of his many gated mansions.