Links for 2014-07-13

Quick links to a few items I found interesting.

Nowcasts of GDP. Want to know what the latest economic releases imply for the current quarter’s GDP? The Federal Reserve Bank of Atlanta is now making publicly available the forecasts from its GDPnow model which is updated with each new economic release. The July 10 inference is that we might see 2014:Q2 GDP come in at a 2.6% annual growth rate. Private-sector services like provide estimates based on alternative models for a number of different countries.


Missy Hamilnook reflects: “Play is the work of the young child.” Read Susan Medley’s review of the book or order from Amazon.


Meeting Menzie Chinn. Most people are surprised to learn that although Menzie and I have been working as a cyberspace team and have been in nonstop email communication with each other every week for the last 10 years, we had never met in person until this week. Fate finally brought us together in non-cyberspace reality when we converged in Boston for seminars and discussions hosted by the National Bureau of Economic Research. Photo courtesy of University of Houston Professor David Papell.


23 thoughts on “Links for 2014-07-13

  1. PeakTrader

    There may be several major reasons why GDP growth has been weaker after 2000.

    1. U.S. firms have more market power, after the quick and massive creative-destruction process, mostly from 2000-02. So, rather than prices falling, profits rose, e.g. in Information-Age and Biotech Revolution products, including internet services, iPhones, cell phone services, new drugs, etc..

    2. More regulations (federal and state), which are regressive, have driven-up the cost of living. So, there’s less to spend on everything else.

    3. More taxes, fees, fines, fares, tolls, etc., by state and local governments, much of which are regressive.

    4. Higher gasoline prices, from the oil shock and Peak Oil, is a tax on consumption.

    5. Imports became increasingly cheaper. So, there was likely some shift from domestic goods to foreign goods.

    6. Slow low-income wage growth (raising the minimum wage may be a pro-growth policy).

    The U.S. has bridged much of the low-income and high-consumption gap with debt.

    1. BC

      Peak causes of “secular stagnation”:

      (1) Peak Oil.

      (2) Peak Boomer demographic drag effects (shift in composition of high-multiplier household spending from housing, autos, and child rearing to low-multiplier spending on house maintenance, property taxes, utilities, and out-of-pocket costs for medical insurance, services, and medications.

      (3) Record dept to wages, GDP, and gov’t receipts (disproportionate share of profits, incomes, and gov’t receipts going to debt service after taxes).

      (4) Extreme wealth and income concentration to the top 0.1-1% to 10% (hoarding of no-velocity savings/assets in the form of historically overvalued stocks, corporate bonds, and real estate, reducing productive investment, production, employment, and purchasing power of labor).

      (5) Record-low share of wages to GDP driven by offshoring, deindustrialization, financialization, and feminization of the economy.

      (6) High fixed costs of maintenance (including insurance) of the built infrastructure at no real final sales per capita growth since 2007-08 and a rate of less than half the long-term average since 2000.

      (7) Imperial military overstretch resulting in a debilitating share of economic output going to military waste and obsolescence.

      (8) Combined total gov’t spending, debt service, and private “health care” costs are at an equivalent of 50% or more of GDP, with these sectors becoming a net cost rather than value added. The economy overall cannot grow with these sectors at such a large a share of GDP, and these sectors cannot grow unless the rest of the private sector of the economy is growing.

      No doubt one could list more, including the cartel-based regressive costs you cite.

      1. PeakTrader

        Yes, demographic shifts had an effect on GDP growth. However, some “Baby-Boomers” worked longer and harder, because they saved too little or borrowed too much, which adds to economic growth, while some Baby-Boomers were able to retire early, because of the spectacular 1982-00 structural bull market, which subtracts from growth. “Prime-age” workers are between 35-54 (the second most productive group is 55-64, based on education, training, and experience). The 80 million Baby-Boomers, born between 1946-64, began to enter prime-age roughly in 1982 and began to leave prime-age roughly in 2000. I suspect, when the last of the Baby-Boomers reach 65 in 2029, there will be another economic slowdown, or depression, in part, because they’ll consume much more than produce.

        1. BC

          Peak, the demographic effects are primarily as result of the rate of change of increase, not the peak population. People born after 1956-59 or so are not Boomers, really, so the peak effect occurred in the 2000s, and the drag effects will effectively be permanent as Millennials are only a half the size of Boomers as a share of the labor force and total population.

          If one breaks down earnings and spending of those over age 55, they do not significantly add to net incremental spending, similar to those under age 25. The R^2 for their employment, earnings, and spending to PCE and final sales is quite low, as those who work after age 55-60 tend to do so out of necessity, suggesting that they are more likely than not to be in the bottom 50-80% of the socioeconomic strata, i.e., subsistence.

          The net drag, or drawdown, effect of peak Boomers began in 2004-11 and will accelerate as of 2013-19 and bottom in 2022-25. Therefore, the depression you anticipate is already underway, only it’s a Japan-like slow-motion variety, as is also occurring in the EZ and will begin in China-Asia at any point hereafter, if not already.

          As for mobility, that ended in the 1990s with the secular reflationary peak Boomer boom era. Boomers will now be net consumers of financial wealth as of the 2000s, as well as net consumers of gov’t services.

          Also, poor immigrants you mentioned are much less likely to graduate high school or college, be a mortgage debtor (“homeowner”), or obtain professional income or status. They are much more likely to be arrested and incarcerated, have children out of wedlock, and their person per household is higher than non-Hispanic Whites.

          All of these factors (and many more) will contribute to reducing the speed limit of post-2007 real final sales per capita (and real total returns on assets) to 0% and a trough-to-peak trend of ~1%.

          By 2020-25, the US will have lost 25-33% of growth of real final sales per capita since 2000 that would have otherwise occurred had the long-term trend continued after 2000 and 2007. This is equivalent to the loss of growth in Japan since 1990 and equivalent to the 1929-33 collapse, only this time it will take 20-25 years instead of 4 years.

          The more poor people (and non-working female and elder relatives of working immigrants) who flood into the US during the era of “secular stagnation” or “slow-motion depression” hereafter, the slower the real GDP/final sales will be for everyone else.

      2. PeakTrader

        Another demographic shift was massive immigration of low-skilled workers from dirt poor countries, while much of the domestic “middle class” rose into the “upper middle class.” So, there’s more income and wealth inequality. Those immigrant workers, in general, are underpaid (paid less than their productivity), while federal, and some state, tax rates were raised on the affluent (which, along with regulations, may be a disincentive to work or start a business), or became more progressive (where low-income workers receive more tax credits).

        Rising riches: 1 in 5 in U.S. reaches affluence
        December 6, 2013

        “New research suggests that affluent Americans are more numerous than government data depict, encompassing 21% of working-age adults for at least a year by the time they turn 60. That proportion has more than doubled since 1979.

        Sometimes referred to by marketers as the “mass affluent,” the new rich make up roughly 25 million U.S. households and account for nearly 40% of total U.S. consumer spending.

        In 2012, the top 20% of U.S. households took home a record 51% of the nation’s income. The median income of this group is more than $150,000.


        Growth in the
        Residential Segregation
        of Families by Income,

        “The proportion of families living in affluent neighborhoods doubled from 7 percent in 1970 to 14 percent in 2007.

        Likewise, the proportion of families in poor neighborhoods doubled from 8 percent to 17 percent over the same period.”

        My comment:

        In 1970, the proportion of Americans in the “affluent” and “upper income” classes, and also in the “low income” and “poor” classes were relatively small, while the proportion of Americans in the “high middle income” and “low middle income” classes were very large.

        If you break down those six classes into three classes, the high and low classes grew and the middle class shrunk. Those three categories are almost equal in size today.

        In 1970, both the high and low classes were about 18% each, while the middle class was over 60%. In 2007, both the high and low classes were about 30% each, while the middle class was over 40%.

        Many middle class Americans moved into the higher classes, while many immigrants from dirt poor countries moved to the U.S. and into the lower classes.

        Despite conventional wisdom, there has been tremendous upward income mobility in the U.S..

  2. Johnny

    Hi James and Menzie,

    surprised to hear that you have just met in person.
    James, you look tired and thin, may I suggest that you take a break ..
    Menzie, you look well and content, you like chinese food or hamburgers don’t you …

    1. PeakTrader

      Johnny, James may be a vegetarian, who likes to jog, while Menzie’s wife likes to rub his hair, before he leaves for the BBQ 🙂

  3. Doug of N Texas

    Part of the richness of the blog is the different approaches and interest areas of the two authors. Still surprised that this is the first meeting.

  4. benamery21

    The book looks terrific, if it were available in softcopy I’d spring, but I’d rather not swipe one of the last hardcopies. I assume Missy Hamilnook is your mother?

    1. James_Hamilton Post author

      benamery21: Yes, Alicita Hamilton is my mother. The book can be obtained in epub, mobi, pdf, rtf, lrf, pdb, or txt formats from Smashwords.

  5. PeakTrader

    Too much spending on national defense isn’t a major problem.

    The Gates Farewell Warning
    America can be a superpower or a welfare state, but not both.
    May 28, 2011

    “In historical terms, the U.S. spends relatively little on defense today. This year’s $530 billion budget accounts for 3.5% of GDP, 4.5% when the costs of the Afghan and Iraq wars are included. The U.S. spent, on average, 7.5% of GDP on defense throughout the Cold War, and 6.2% at the height of the Reagan buildup in 1986.

    The big three entitlements—Social Security, Medicaid and Medicare, plus other retirement and disability expenses—eclipsed defense spending in 1976 and stood at 9.8% as of last year. Under current projections, entitlements will eat up 10.8% of GDP by 2020, while defense spending goes down to 2.7%.

    Europe went down this road decades ago and today spends just 1.7% of GDP on defense. The Europeans get a free security ride from America, but who will the U.S. turn to for protection—China?

    I have been a strong advocate of soft power—of the critical importance of diplomacy and development as fundamental components of our foreign policy and national security,” Mr. Gates said. “But make no mistake, the ultimate guarantee against the success of aggressors, dictators and terrorists in the 21st century, as in the 20th, is hard power—the size, strength and global reach of the United States military.””

    1. Nick G

      The US has wasted enormous amounts of money and human capital on wasteful and counterproductive military spending.

      Waste of human capital: What percentage of US engineers are working on military projects? What’s that percentage in Germany?

      Counterproductive military case in point: Iran, 1954. Iran had a nascent democracy, and the US helped reinstated a dictator in order to help ensure access to ME oil, directly leading to the events of 1979 and all of the negative consequences since: Iran’s nuclear program, Iran’s support of terrorism, US support for Saddam Hussein vs Iran which led directly to the first Gulf War, which led to 9/11, etc., etc.

      If the US had diverted just a portion of it’s M.E.-related military R&D and operational spending to EVs, the US would be far more prosperous and secure.

      1. PeakTrader

        U.S. foreign policy has made the world much safer, in the second half of the 20th century and beyond, particularly with the introduction of nuclear bombs.

        Thanks to the U.S., democracy and capitalism spread throughout the world, along with the explosion in globalization (i.e. open markets, free trade, and unrestricted capital flows), which made the world safer, more stable, and more prosperous.

        If the U.S. followed your advice, U.S. per capita income would be even lower than Western Europe, i.e. over $10,000 a year less, with much more inefficiencies, in the economy, resulting in much lower living standards, while the world would’ve been much more dangerous.

        1. Nick G

          U.S. foreign policy has made the world much safer

          I hope you’re right, but…how does that relate to the US’ Mideast policy?

          If the U.S. followed your advice, U.S. per capita income would be even lower

          How so? You need to spell out your logic. I don’t really see a downside to saving the $2T the US has spent on Iraq and Afghanistan, while redirecting much of the engineering talent spent on improving weaponry to R&D on things that make our lives better.

          1. PeakTrader

            You seem to believe if civilized societies allow evil people to run amok and shift from cheap energy to expensive energy, everything will turn out fine.

          2. Nick G

            if civilized societies allow evil people to run amok

            We should avoid poking wasp’s nests unless it’s truly in our national self interest. If we (or our friends) didn’t need oil, we would never have invaded Iran, Iraq, or Afghanistan. We would have saved trillions in cost.

            Perhaps more importantly, we’d have saved thousands of lives. Heck, 270,000 veterans have brain injuries because of our recent wars in the ME. How many more young people do we want to sacrifice in order to protect oil company owners?

            Oil is expensive, dirty and dangerous. Hybrids, EREVs and EVs are already the low cost choice for Total Cost of Ownership – look at for the Nissan Leaf, Prius C, and Chevy Volt: you’ll see that they’re all less expensive than the competition.

          3. PeakTrader

            You want to make evil people and uncivilized countries richer and stronger, with cheap energy, and make good people and civilized countries poorer and weaker, with expensive energy.

            Civilized countries should continue to kill two birds with one stone, ridding the world of evil people and taking cheap energy.

          4. Nick G

            You want to make evil people and uncivilized countries richer and stronger, with cheap energy

            We’re talking about oil, here, right? The thing that’s at $100 per barrel? That’s about 4 times as expensive as natural gas, and 3 times as expensive as coal per BTU, right? How is that cheap??

            Keep in mind that a car that gets 50MPG costs only 40% as much to run as a car that gets 20MPG. And, usually the car that gets better MPG is also cheaper to buy!!

            Finally, the average US gas car, at 22MPG and $3.75 per gallon, costs about 17 cents per mile to run. An electric car, at 3 miles per kWh, and kWs at an average of 12 cents. costs about 4 cents per mile. So, the electric car costs 25% as much to to run as the gas car.

            That’s a savings of about $21,000 over the life of the car.

            Civilized countries should continue to kill two birds with one stone, ridding the world of evil people and taking cheap energy.

            We’re paying a very high cost for our military protection of our oil supply:

            $4T in military costs in Iraq & Afghanistan, including ” About 2.5 million men and women have served in Iraq and Afghanistan, and just over 1.5 million had left active duty by September 2012. Of those, more than half were receiving government medical care, and one out of every two veterans had already applied for permanent disability benefits.

            More than 600,000 have been harmed in some way, including 253,000 who suffered traumatic brain injury, often as a result of being in close proximity to explosions. “Research from previous wars,” Bilmes writes, “has shown that these veterans are at a higher risk for lifelong medical problems, such as seizures, decline in neurocognitive functioning, dementia, and chronic diseases.”

            “More than 270,000 veterans of the Iraq and Afghanistan wars have received a diagnosis of traumatic brain injury”


            Finally, I know you don’t like places like Iran, Iraq and Saudi Arabia, but don’t you think the best revenge is just to stop sending them our hard earned money??

          5. PeakTrader

            If electric cars were a bargain, consumers, throughout the world, would be snapping them up. Yet, the market remains weak.

            And, the (real) costs of WWII were much higher.

            Saudi Arabia and now Iraq are our allies.

            Oil is mostly sold for U.S. dollars. So, countries sell valuable goods to the U.S. for worth less dollars. Iraq and Afghanistan were paid for by foreigners, indirectly.

            The U.S. has consumed up to $750 billion a year more than produced in the global economy and in the long-run.

            In exchange for free goods, the U.S. does the “dirty work,” that other countries won’t or can’t do, to stabilize the world and prevent even worse outcomes.

          6. Nick G

            If electric cars were a bargain, consumers, throughout the world, would be snapping them up. Yet, the market remains weak.

            Yes, EV sales growth can appear fairly slow at the moment, compared to previous hopes. It’s worth noting that they’re growing faster than hybrid sales did when they were introduced, and that US pure EV sales have doubled each year for the last three years. Nonetheless, Plugin Hybrid EV (PHEV) sales aren’t growing quite as quickly as we might have hoped.

            Cost isn’t the problem. New light duty vehicles (cars, pickups, SUVs) sales don’t seem to have that much to do with price. The minimum cost US vehicle is about $11k, while the average vehicle is more than $30k.

            Hybrids, EREVs and EVs are already the low cost choice for Total Cost of Ownership (per, so if cost were the driver….we would have reached the tipping point.

            Supply isn’t the problem: Toyota, Nissan, Ford and GM will tell you that they could double production of their hybrids, EREVs and EVs literally overnight, if demand were there.

            There are two big problems:

            First, the vast majority of people are very slow to move to new things. Individual consumers have to see people around them using this new thing for quite a while to become comfortable with them. For example, online food ordering has overwhelming benefits for parents, but Webvan went bankrupt: they counted on people moving to a new thing too quickly.

            Commercial users of heavy duty vehicles face large problems of economy of scale, long-lived investments and operating in a tough competitive market. Large fleet customers have been experimenting with pilot programs, but have been afraid of being first movers (“Pioneers are the ones with arrows in their backs”). That suggests that the early rate of adoption may be deceptive. At a certain tipping point fleet buyers will decide high oil prices are permanent, and that electrified/alt fuel vehicles are clearly cost justified. Then, sales will grow quickly.

            Second, the primary reason for EVs is external costs like Climate Change and the cost of military conflict in the M.E., and as a society we haven’t prioritized dealing with those costs. We just haven’t. Until we do, with things like carbon and fuel taxes (which even the most conservative economists support for external costs) and acceptance by Republicans, it’s unrealistic to expect fast movement by consumers.

            And, the (real) costs of WWII were much higher.Saudi Arabia and now Iraq are our allies.

            How is the cost of WWII, and the allegiances of KSA and Iraq important? We’re still spending 100’s of billions, and injuring 100’s of thousands of soldiers, to “secure” oil supplies.

            Oil is mostly sold for U.S. dollars. So, countries sell valuable goods to the U.S. for worth less dollars. Iraq and Afghanistan were paid for by foreigners, indirectly.

            Oil exports in the M.E. are not currently running surpluses, and stashing away US dollars into reserves. They’re spending them as quickly as they come in. Even if they weren’t, there are much better things to spend our “free” dollars on.

            In exchange for free goods, the U.S. does the “dirty work,” that other countries won’t or can’t do, to stabilize the world and prevent even worse outcomes.

            There are better places for the US to intervene. We could have intervened in Rwanda, for instance, to prevent 100s of thousands of deaths. Instead, we intervened to protect Kuwaiti and Saudi “princes”.

  6. spencer

    Energy now accounts for only 5.5% of nominal personal consumption expenditures.

    That is lower than it ever was prior to 1990.

  7. Ricardo


    Great observation! We constantly increase our use of machines in our world in the form of computerization. Consider how much smart phones reduce energy consumption. The reduction in snail mail to email is huge by itself. When you throw in electronic ordering, payment, delivery (photos, scanned documents, and payments). And we are just starting to scratch the surface in low energy communication. This is one reason I am less and less concerned by peak oil claims.

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