The White House issues page titled Bringing Back Jobs And Growth claims “President Trump has outlined a bold plan to create 25 million new American jobs in the next decade and return to 4 percent annual economic growth.”
Let’s take a look at GDP trends and the reasons behind those trends to assess the likelihood of Trump’s claim.
US Real GDP Quarterly at Annualized Rate
US Real GDP Per Capita Quarterly at Annualized Rate
Let’s smooth out some of the volatility by using annual GDP growth.
US Real Annual GDP
The trend in real GDP went from over 4% in 1948 to 2% in 2016.
Reasons for Decreasing Growth
- Rising debt and debt service loads
- Increasing government interference in the free markets
- Demographics – Aging boomers
- Changing attitudes of millennials towards consumption and debt
- Changing attitudes of millennials towards family formation and housing
- Untenable pension promises and excessive public union pay
- Fed’s insistence on 2% inflation in a technological deflationary world
- Repetitive asset bubbles by the Fed that benefit the banks and already wealthy
Some blame falling population rates. The real per capita chart disprove that thesis. A massive influx of baby boomers did not reverse the trend. Yet, aging boomers and their healthcare problems will surely add to the existing problems.
Former Fed Chair Ben Bernanke blames a “savings glut”.
Larry Summers proposes “secular stagnation”, an idea also encompassing the excess savings theory.
Brad DeLong is another economist who blames excess savings.
Anyone blaming a savings glut is clueless about the true meaning of savings. Widely held notions that inflation is a benefit are also wrong.
Challenges Unanswered
My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.
So has my challenge on the Secular Stagnation Theory: Challenge to DeLong, Summers, Bernanke, Krugman.
The economists cannot answer because the savings glut thesis and all of its derivations are total nonsense.
The BIS did a study and found routine deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Grasping Reality With Both Hands
Inflation and Fed policies that attempt to force inflation in a technologically deflationary word bring about the rising inequality that the above group wants more inflation to flight!
Delong’s blog is entitled “Grasping Reality With Both Hands“. It would behoove Delong, Summers, and Ben Bernanke to do just that.
Mike “Mish” Shedlock
I think Trump is doing an amazing job, especially considering the infantile nonsense being peddled as “news”…
But with that caveat aside, the government does not create jobs. Not 25 million of them. Not 25 of them. Not even one. That’s just political rubbish, the kind of thing that media outlets like to grab onto for ratings (whether the media agrees or disagrees, its good for ratings).
And I don’t see 4% GDP growth happening when the entire economic system is choking on debt, and Obamacare threatens to suck up two out of every one penny that every single taxpayer earns. As long as Obamacare stays, 4% growth is off the table. And as long as debt levels are above 50% of GDP — debt service will suck up money that should go to R&D or building / upgrading factories.
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“I think Trump is doing an amazing job”
Really?
Where is his plan to defeat ISIS? We are still using Obama’s plan.
Where is his much better plan to replace Obamacare? He has nothing and so just went with Ryan’s then McConnell’s plan (remember when 45 told us that Price was just about to release the administration’s H/C plan and Price just laughed at him?)
Where is his plan to increase jobs? Job numbers are leveling off.
Where is his plan to grow the economy by 4%? As usual, nothing.
Why do you believe what politicians tell you?
Here is a secret that might help you – politicians lie to you to get you to vote for them. Their propaganda wings create granfalloons to whip up emotions so people don’t think for themselves. They vilify targets for your daily two minutes of hate.
Until America asks for detailed policies and plans they will be served up rhetoric and taking heads to deflect us from what is really going on.
All of our politicians have top quality healthcare and index linked pensions for the rest of their lives. Few are poor, in fact most are millionaires or better.
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I see you are in my karass, Mono.
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ISIS was created by the US, UK, and Saudi Arabia. If we wanted to defeat them, LOL, we would be fighting on Assad’s side….
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Trump is doing an amazing job
Yes, really. He’s already done more in 6 months than Obama did in 8 years.
ISIS was created by Hilary and Obama — its not a threat, just one created by Hilary and Obama to justify more of Obama’s illegal surveillance.
Trump said he was going to let Putin “solve” the ISIS problem, and that is exactly what is happening — no thanks to the clowns at CNN / MSNBC who are trying to sabotage the country.
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I can easily see 4% growth in government.
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the only way to get to 4% is to reduce dead weight loss of government from 42% of GDP to 10-15%.
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Can anyone explain why a family would sacrifice and scrounge to pay $75K per year to have their children indoctrinated at Berkley (deLong) or Princeton (Bernanke)?
These two men have had their academic theories completely discredited.
At some point, people have to accept responsibility for the nasty student loan problem. Obama shouldn’t be lending taxpayer money to subsidize left wing indoctrination camps. But parents and allegedly “smart” kids should be smart enough to recognize a scam when they see one. Berkley and Princeton might have been great schools once upon a time, but they are scams today.
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I can easily think of a dozen people out of Princeton that I have worked with. I’m not suggesting the school did anything for them, but the caliber of kid that goes there is pretty f’n high.
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You have established in many many comments on this blog that you are easily impressed by titles and credentials.
The Princeton kids have titles and credentials — but not much in the skills department
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1- Getting into Princeton is impressive.
2- I have stated more than once that I never expected anyone that I have ever hired out of school to have any skills useful to me.
The later is essentially my point. By constraints of time, handed a pile of resumes, those w/o the name of a top university get thrown in the NO pile. Am I probably throwing away the best candidate? Yes, most likely. But it just is how it goes. Give me someone that shows they have already performed and are capable of performing and then i just need to find someone in that pile with the “right” social/emotional/aggressive characteristics.
IMO…it is that, always having your resume automatically thrown in the Yes pile, the fact that for no other reason you will be given the opportunity to have a chance, before all others, that is what makes that degree worth so much more.
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..The contacts you make there and particularly the “alum” thing can also be pretty helpful. – The majority of people at my first job were all hired out of the same University. I got my interview from a classmate/friend a year older than me.
Basically, if you can get into Princeton, you are a moron if you don’t go.
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Getting into Princeton USED TO BE impressive.
It isn’t anymore.
Having Princeton on your resume is like saying you worked at the NY Times. It used to be impressive. Now its just sad.
PS — my firm already fired the 2 princeton infants they hired last year. Not in my department. I wouldn’t hire them last year, nor was I involved in their being let go this year. Their dads had impressive connections, the kids were entitled brats with lots of political opinions and very limited base skills.
Everyone expects to have to train college grads in the specifics of their business. We don’t want to waste time de-programming them like they are cult members — and too much of college today (not when you apparently went, TODAY) is about political screaming.
Princeton grads are whiny and programmed like cult members to worship Bernanke’s poop. They lack the basic skills that employers can build on… they especially lack critical thinking skills. Mindlessly agreeing with the cult leader’s teaching is not critical thinking
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So they will be the bosses of just about all of the kids who don’t go to the “right” schools.
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Hummm, how does 8 years of actively promoting entitlements (Cloward Piven style), race wars, social justice, and federal government sector growth (for starters) work into this picture Mish?
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Whoops, there goes another rubber tree plant, sorry Frank Sinatra. Twenty five million jobs and 4% GDP in ten years. Let’s see, that’s 2.5 million jobs a year and 0.4% additive GDP per year. I suppose it could be done.
As to inflation and the question of savings, yes, Mish is absolutely correct. Will the academics ever bother to reply? Why should they, they get paid to spout enough nonsense to keep the politicians happy. You might as well ask those practitioners of MMT to prove their thesis. Seems most of these individuals forget that economics is human activity and not mathematical equations.
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Modern Economies are too complex to control or predict. Economists have not a clue what is going on. I feel for you Mish having to advise people what to do with their money in this environment. It has to be tough.
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A “savings glut” is to be expected. Baby boomers have kids that have left home, they have most of the things they need/want, and now they are approaching retirement, so they need to save/pay off bills. They might need a mattress, or a new suit, or whatever, but they aren’t going to be out buying things like they were when they had a house full of growing kids.
Once they have formed households, millennials will spend enough to drive the economy, and if any of the things they buy are made in the US, we’ll see GDP jump again.
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Spot on.
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There is no ‘savings’, everything liquid gets reinvested. The future claims by (retired) investors will be to spend or reinvest.
What there is is a participation ‘shortage’, both in productivity and associated demand, for various of the reasons outlined. Real GDP per capita does not segregate the different layers of society, so does not give a clear answer. Also the CPI deflators used will not help give accurate figures…the only way to get a real sense is to be out and about and learn what the real ambitions, holdbacks, opportunities, sentiment is among the population.
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Spending never did, never will “drive” an economy. Production does.
Just as eating ones seed corn doesn’t “drive” a farm. Putting them back into productive use, does.
What Bernanke calls a “savings glut”, is solely an inevitability arising from his own myopic, arbitrary and real world irrelevant way of supposedly distinguishing between what he calls “savings” and what he calls “consumption.”
Money spent at Sears Roebuck is classed as “consumption.” Money spent at Goldman Sachs is called “savings.” Is it really so hard to understand that a policy dedicated to taking money from those predominantly spending their money at the former, and handing it to those who predominantly do their spending at the latter, will then show up as a “savings glut?”
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LOL….USA is not an island unto itself.As the world economy goes so do we.
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So why isn’t the end of WWII taken into account to the ever decreasing GDP since? After WWII the US was the only game in town for the production of goods. Basically the US had no competition in the world stage. Europe and Japan reconstruction was made possible by US money and US products. I think having no competition should figure among the reason the US grew that fast several decades after WWII
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Great charts, showing a long, long downward movement. I’d suggest that none of Mish’s answers to the problem are representative of that down trend. I’m confident the answer has been found by a different economist: Dr. Robert Gordon of Northwestern University.
I believe he has shown fairly definitively that the problem is the result of a lack of innovation over the last 50 years, reducing the overall growth in achievable productivity gains.
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I thought the US could achieve 2% growth with Trump and the Republicans controlling the government and actually passing some new initiatives, but after seeing how incompetent they are, I’ve lowered my forecast to 1%. World growth should remain 2-3%.
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Since when has saving been a “sin”?
We live in an upside down world of wrong incentives created by theoreticians.
Good behaviours of the past are seen as wrong, to be discouraged or punished. Controls twisted to achieve that punishment and discouragement that only increase the desire to save through poor returns and fear of the outcome of the policies followed.
In all this there are moral questions few if any are asking but the answers to which will offer solutions. Not painless to apply but there is no way out without some pain.
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+1
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“Since when has saving been a ‘sin’?”
It has been a sin ever since economists running the central bank decided that demand drives economic growth, so savers must be prodded into spending at all times, preferably to the point of spending borrowed money and making payments.
Here’s an idea: Economic growth is driven by the surplus that develops from the productive use of assets and wise spending. The unproductive use of assets with unwise spending leads to shortages and economic contraction. Savings is a way of preserving assets until they can be used productively, and to the extent there is no penalty for savings, it helps economic growth in the long term (because that savings will at some point be used productively).
Can I get an honorary degree for that?
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Yes, capital formation.
Should be encouraged.
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It has been a sin since they found out how to confiscate them.
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Steer clear of theoreticians:
1) when there is a lag to the results of their decisions
2) when they’ve not known economic hardship or had to graft to get money in
3) when they have no skin in the game
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4) when they state certainty about anything
5) when their statements are waited upon by markets
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Globalization has killed the golden goose. No wonder we’re flailing. We’re heavily subsidizing the rest of the world for 2 of the biggest ticket spending items – namely defense and health care. I can buy US made pharmaceuticals overseas for half the price of what I pay here. And if a US citizen opted to mail order and import those medications at a discounted price he’d would be violation of US law and could go to prison. If a multi-millionaire independently supported 50 welfare families for how long would his net worth hold up? To Trump’s credit he’s trying to solve some of these problems – but he can’t do it alone – and it’s probably too late anyway.
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+1
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So the economy improved at a much better pace with free market capitalism than with bank central planning. Bank central planning of the economy is inefficient. We need a gold standard to restore efficient free market capitalism, and let the average person benefit from productivity improvements again.
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I suspect its too late for a gold standard in the US.
The magicing of money out of thin air is the basis of the whole social order.
The contraction in credit would lead to massive social instability.
Its probably possible under some sort of dictatorship or a small homogenous country but not in a large scale democratic society where there is a high percentage of welfare recipients & lack of common cause.
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Whether it is shadow economy, refusal to fully incorporate in the establishing structure, private currency etc. etc. there will always exist parallel realities that will be there if the official path becomes intolerable.
There is not lack of common cause, the current structure is based on the tenets of a common purpose as embodied by a supposedly representative governance, it is when it is realised that the common cause is not to the benefit of the individual that the dissidence starts. Rebellion is not ‘common’, it is individual, where each has his or her own personal grievance, hence impossible to manage at an aggregate level. Often the only commonality in that is a wish to remove those that most represent the established order. History shows that often the encounter of a replacement structure is haphazard and difficult.
Maybe tptb will be gracious enough to allow a parallel world to flourish, but they cannot be counted on to relinquish some power and authority and concentrate only on other, it would be deemed unfair as common benefits, and hence duties, underpin the whole philosophy, no matter if corrupted or poorly designed.
Authority does not have to get anything right, just not wrong, as people will be divided into fools and those who do not tolerate foolishness. Unfortunately very rarely does power not seek more of it for itself, and in so doing it will wrongly assume as suits.
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Actually a gold standard would be quite helpful, by keeping service inflation under control. Federal, state, and local budgets are in a situation substantially because health care and education inflation are out of control. Bankers printing 2% inflation on the imaginary rent that homeowners don’t pay to themselves has led to near double digit service inflation. State colleges, city K-12 systems, Medicare. All are subject to fantastic inflation as bankers confiscate purchasing power from public revenue. Don’t even ask what printing has done to muni pension plans, or muni retiree health care.
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ROFL, a savings glut. Earning what, maybe a 1/10 of a %.
“The BIS did a study and found routine deflation was not any problem at all. “Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.”
One question about the BIS study. Who benefits from the BIS spewing this nonsense. Perhaps a deflation plan is in the works. Please extrapolate what would happen in such a scenario and who would benefit from it, Mish/anyone.
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BIS report is accurate
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When the Fed speaks of inflation, they mean price inflation. In what way does price inflation help you, or anyone? Perhaps the producer, for a while, until the workers demand their share (sound familiar?). Deflation, on the other hand, provides widespread benefits; often even for the producer, as his product can now be purchased by more and more people. What did the first cars cost, or the first PC’s? The first CD players cost hundreds, and burners where over a thousand.
One defense of price inflation is that it keeps labor unrest down, as a worker gets more money and/or sees no salary decrease; even though he can only buy less with it. Years back, a friend complained that he had gotten no cost-of-living increase. I said that meant his living costs had been (basically) flat, instead of going up by X amount. I then pointed out that the increase never actually matched how much living costs increased.
Think about it.
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Presidents are not in control of economies, but they are held accountable for every downturn.
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Let’s ignore what Trump said in election campaign. If he can keep one promise, to leave the world more peaceful when he leaves office that is one big accomplishment.
BTW, I read the GDP chart like this: the booms spikes are getting smaller, and the recession dips are getting deeper.
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The fact that Trump eliminated any chance of Hillary becoming President was a big enough win for me. Even if Trump failed to deliver on any of his campaign promises (which has already been disproven) I’m proud that I voted for him since he took Hillary to the woodshed.
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+10000000
Hilary is a disaster
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Mish normally you would mention corporate taxes being way too high. Also I really don’t think many people realize how damaging pornography has become as it relates to productivity and many more cultural evils it seems to include such as record drug abuse, violence, and corruption especially in places like Washington DC and Wall Street where we need honest leadership most of all. I’m trying to make the point that cultural decadence has caused the lack of respect for traditional values and the rule of law and without virtuous leaders we will never be able to even admit how serious our problems are. It’s damn depressing to me because we and the rest of the world are heading for a total financial collapse with possibility of a depression, terrorism, and war!
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The ultimate insanity: one man deciding the fate of millions ! Take your queue from history.
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The only people on the world stage who can reliably be counted on (Snowden and Assange) to deliver truth are in the protective custody of foreign governments.
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Any explanation of the events following 1948 that does not account for the events immediately preceding 1948 is flawed.
The “initial” conditions of 1948 were historically aberrant. The GDP numbers from 1948 to 1971 were unsustainable and it would take another global catastrophe to even come close to duplicating them.
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Trump should interview Richard Werner who will tell him banks should be small and numerous and should lend to entrepreneurs who want to make products. No lending to speculators especially real estate speculators. Banks will complain this is hard. Tough.
Then Trump should interview Steve Keen who will tell him the controlling variable is total private debt. To reduce private debt we need a debt restructuring most readily accomplished by a fiscal deficit financed Jubilee. While seemingly crazy this is a practical way to jumpstart our stagnant economy. Combined with Werner’s advice we can quickly have low unemployment plus rapid Economic growth.
In brief: Stop practically everything we are doing now, endless wars, irresponsible borrowing to purchase equities and houses, not lending to entrepreneurs for manufacturing, holding interest rates at zero but only for speculators, guaranteeing loans to house flippers, guaranteeing loans to college students, tolerating medical care price fixing, collusion, and monopolies, tolerating financial fraud including still mark to fantasy under GAAP rules ten years after the crisis.
This. Could. Work!
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“Debt Jubilee” is nothing but newspeak for letting the banksters who ran up debts to so called “systemically threatening” levels, and spent that money on buying everything of value in America, keep everything they bought. Just now, debt free. With someone else, who own nothing, having to pay off the debt, via their tax bill.
No new, weird, cockamamie “solution” is needed. Nothing more than what Jefferson and buddies had in place 200+ years ago: Gold at $20 odd bucks an ounce. And bankruptcy law that dates back to the Renaissance or somewhere around there.
Nothing “clever.” Clever being just another newspeak word, this time for pretending that over a century of aggressively promoted systemic theft, can somehow be made a-ok, by futzing around with silly constructs involving nothing more than printing ever more paper.
Again, $20/ounce, VERY accelerated, final and incontestable bankruptcy proceedings. Done!
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Actually the banks would hate a Jubilee. Defined as everyone with a tax ID receiving printed money and if you have debt the windfall must be used to pay down debt. If everyone in US had debt (close to true) under this plan every dollar created by printing would be offset by a bank credit dollar disappearing as the banking system aggregate balance sheet shrinks so this is not inflationary. The asset price inflationary damage was already done by bank credit money creation. In the limit of total debt pay down bank balance sheets would have zero assets. So if you want to shrink the banking sector a Jubilee is one good way. We need a much smaller finance sector and lower private debt. Bankruptcy is another path to this but I think you are too cavalier about how this would play out in practice. Much suffering would occur and banks would end up owning/selling everything in a debt deflationary asset price collapse. Nightmare.
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As you say, “Banks” in the narrowest meaning of the word, may end up losing out.
But not the rest of the financial sector, which is infinitely larger than just strict banking. PE funds, hedge funds, and every other entity and individual who has used superior access to credit to purchase assets at idiots-only valuations, will suddenly own the assets outright, with no debt burden at all……. Hence, the whole “debt jubilee” thing, is simply a giveaway to exactly those economic actors who has most irresponsibly contributed to the situation we are currently in, by borrowing too much. Something noone can fail to notice, hence they’ll start borrowing again, getting ready for the next debt jubilee…..
This is why bankruptcy law has evolved to be what it is. If what you say was correct, why not just have everyone who can;t pay their debt, go to the Fed and have the Fed print up some money to hand to the creditors? Much less “suffering” that way, not?
What we need, is a “debt jubilee” where debt is written down. BUT, at the sane time, all those things which were purchased with that debt, it’s “collateral” so to speak, is also “written down.” Which us what bankruptcy is. Bankruptcy has worked for centuries, as any other mechanism for resolving overindebtedness (debtors jail, cutting off bodyparts, slavery for the debtors and his offspring, and no doubt in some part, a “debt jubilee” as well) has proven vastly inferior. Both in theory, and in practice. While “debt jubilees”, “bailouts”, “mark to model”, and the rest of what passes for economics in the idiot-age, have never resulted in a darned thing that’s even remotely positive.
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Suppose everyone receives $10,000. The speculators and sharks you are describing will scoff at this amount. These are the 0.1%. But $10k times one hundred million middle class is one $trillion. This will definitely move the needle. You’d have to block people from reborrowing for some period of time or require stiff loan to value limits else they will simply effectively consume the windfall thus causing inflation. This might force banks to lend to entrepreneurs which is not happening now. If done well a Jubilee will force financiers to manage genuine risk rather than bet on endless asset price bubbles as they do now. Like sunlight to a vampire.
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As I understand it the chartered banks originate much of the paper hedge funds, insurers, and the like hold on their balance sheets. This is because only chartered banks can legally create new credit money by lending. Financiers buy the assets thus created like home mortgages, corporate paper, and so on and bundle these into securities like MBS, CDO, etc. These feed into derivatives creating a further layer of complexity. But the loan originator ie the creator of the base credit money is still a chartered bank and if any higher system debt is extinguished that payment (or default) by the borrower extinguishes the core debt at the point of origination; the chartered bank. You are thus correct that unwinding bank debt will have a multiplier effect in the broader financial system but only because all asset prices rest on the core collateral created by the loan originator which starts with a chartered bank loan.
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“But $10k times one hundred million middle class is one $trillion. This will definitely move the needle. ”
Weimar’s experiment with a “Debt Jubilee” moved the needle as well. Is that something you really want to repeat? And they also did it in chunks of, say, $10K at a time….
And how are you going to “ban” “re borrowing?” As soon as someone who was bankrupt yesterday, is suddenly bailed out, merchants will want to offer him credit again. And, as history shows, he doesn’t much mind going into debt. So now, you have to become a surveillance state. Just to make some harebrained scheme that amounts to nothing more than printing even more money than what has already been done, appear to work.
The problem we are facing is too much debt. Meaning, people have been too incentivized to get into debt as it is. And lenders have been too incentivized to lend. Bailing out the worst offenders on both sides, is exactly the wrong thing to do in such a situation.
Instead, the goal needs to be to make overindebtedness hurt more than it currently does. And saving be more rewarding. In both instance, much more. That way, you’ll get less borrowing, and more saving. Which is exactly what you want more of, in an over indebted economy.
And, no harebrained, silly, unproven (because logically unprovable) “thiiingzz are diiiiferent theez tiiime” required. Just the simple institutions of proper money, and age old bankruptcy processes.
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Achieving 4% growth may be possible, briefly though unlikely. Sustaining that growth rate would be impossible (or disastrous); Think resources or energy EROEI. Time for people to get their heads out of the sand.
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My comment from 12:22 this afternoon never made it out of moderation?
What key word did I trip?
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For those of you who wish for a return to the gold standard, be careful what you wish for.
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Bring it on. Mild deflation is a blessing for shoppers.
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