Tuesday, June 22, 2004

The Face of Economics: Tragedy and Traversty

What is tragedy? Tragedy is the failing of one individual life. It is the story of struggling and then being brought down by bad luck, bad choices, or picking the wrong enemies in life. Tragedies will always happen. Romeo and Juliet is a tragedy. Macbeth is a tragedy. What is a traversty is Mercutio. Traversty is a blindly callous system that manufactures tragedy on a regular basis. As such, we should somewhat queasy of our new emerging economic reality and the traversty of how it is generating tragedies as a direct result of our policies.

A man believed to be depressed over financial ills and the pending eviction of his family from a Chicago apartment apparently drowned his two sons along with himself in Lake Michigan, authorities said Monday...

Amde’s family was having trouble paying rent for their Chicago apartment and a judge ruled earlier this month they could be evicted.

That's brutal. This sort of thing happened even at the height of the "new economy". However the difference is what was an exception is becoming more or less the norm. How can I say this? Well let's review some citations, but keep the Amde's family in mind because they are the face of the new economy we have created for ourselves - Democrat and Republican alike.

Billmon who doesn't write that much about economics, perhaps because it is his bread and butter weighs in with a nice article showing how wealth is flowing overwhelming to the wealthy.
So despite all the conservative chatter about a brave new era of populist shareholder capitalism, we can see that the benefits of our gloriously bubbly stock market still flow overwhelmingly to the top of the economic pyramid. Wages (and their more respectable cousins, salaries) remain the life's bread of the vast majority of the American population - and of the American economy as a whole:

When wage growth slows - or inflation accelerates - the pain may not be as dramatic, or as widely covered by the media elite, as when the stock market crashes or corporate profits slump. But it bites much more deeply into the wallet of the average American family. Skilled politicians intuitively understand this. They either deliver the wage growth that creates a perception of broad national prosperity (Clinton) or they convince the voters that wage growth, and prosperity, are just over the horizon (Reagan).

Well how about the jobs front? As it turns out, the persons must vulnerable to the economic downturn - mothers and women generally who disproportionately bear the burdens of childrearing - are being hit in hiring according to the CSM.
For decades, even in the worst of times, women continued to steadily join the workforce, catching up to men in terms of the percentage of the population with a full-time paycheck. But during the most recent downturn, more women left the workforce than came in for the first time in more than 40 years. One economist calls it the first equal-opportunity recession.

Well so what, maybe women are just plateauing? Well according to Nathan Newman who cites such "liberal" publications as say oh The Economist the jobs being created really do have lower compensation packages compared to previous recoveries.
Which is a taste of the real answer, which is that statistics are always, always proxy for something else. A GDP growth number counts something, which we think is a proxy for more stuff being produced in the economy, which in turn we think is a proxy for higher living standards for the average American. As I've argued in posts (See Is Growth Real? to the right), there are serious doubts about whether the stats reflect even more stuff being produced.

But it's the second question-- does a higher GDP number lead to better living for average Americans -- that we should question, since this "recovery" is startling unique in how its benefits are going overwhelmingly to the richest Americans. Take this Economist story (full story in extended post) that does a somewhat better job at identifying why folks aren't buying this great "recovery":
But it is also true that for many Americans the economy does not seem so wonderful. The fruits of this recovery, thus far, have been more evident in firms' profits than in workers' wages. As a share of GDP, wages are at their lowest level in decades. . . .According to the latest employment report, hourly wages for non-supervisory workers rose by only 2.2% in the year to May, compared with consumer-price inflation of 2.3% in the year to April.

The Econonomic Policy Institute has compared this recovery to the past eight recoveries and the comparison is astounding. Unlike those past cycles, corporate profits are breathtakingly higher and wage gains are almost non-existent.

Well maybe the economy is growing but it hasn't reached all sectors of the economy yet right? Well if you look here at the not seasonally adjusted zero maturity money supply, you'll see we're definitely in a downtrend. If we look at the seasonally adjusted numbers here, it's clear that while we're currently in an uptrend the general pattern is down and probably will return to a downward shift when interest rates rise. Thanks to Spencer for the tip. So if anything we're approaching a retest of the lows of 2003. This will certainly happen when interest rates rise. So the economy is not healthy at all. MZM is a measure or proxy for the liquidity in the financial system. The answer is that despite the injection of liquidity from the Fed which threatens dollarized inflation recently, the overall economic activity would still be on a downward trajectory absent Fed intervention. Given that the Fed is expected to tighten monetary policy it is entirely reasonable to think that the legs are about to get kicked out from underneath this economy.

So this is is the face of traversty. Bankruptcy laws get tightened for the little guy, the big fish get off with a slap on the wrist. Corporate taxes are cut but their profits are maximized and the little guy get's shafted on real wage growth and on hiring and compensation. That's the face of the new economy. That's all a little abstract though. What happened to the Amde family is very specific.

It would be wrong to call any one incident representative, until except of course the evidence confirms that policy has turned what was merely individual tragedy into systematic traversty. And people are starting to know it too, and they don't like being told that fancy smancy economic statistics are telling them that they're more well off than they actually experience themselves in real life(Newsweek - Clift Column).
The one positive area for Bush is that the economy is getting better according to the statistics, but he’s not getting any credit for the turnaround. “There’s no belief in those numbers,” says a Republican strategist. Two thirds of voters in the battleground states know someone who has lost their job. Presented with an upbeat view of the economy, voters in focus groups tend to say, “We’re sure glad you came to talk to us instead of those experts who don’t know what’s going on.”

It's not even as if the numbers are lying or at least all of them. There is plenty of evidence that many very serious thinkers and economic experts are finding troubling. The problem is that spin has triumphed over reality. Based on cockamaney bought or disconnected economists the economy is being presented as being on the road to recovery or outright healthy. It is neither of the above. It's not on it's deathbed either but every time the government juices up the numbers - like adding in ad hoc "by hand" jobs numbers that aren't reported but "must be there" - or narrowly counting jobs lost to overseas capital flight in order to downplay offshoring then the public gradually loses trust in the objectivity and reliability of government statistics. To be frank, and I blame this exclusively on neither party, the numbers haven't been this far out of whack since the seventies. It's as if you can't trust them at all, they've become so corrupted.

But the important point is what these numbers cloak. Before anyone praises the "new economy" in my hearing I would like to ask them if they support policies that routinely and as a matter of systematic fact produce tragedies like the Amde family. I don't know them. I don't really care about them personally. I do care that the system has evolved to the point where stories like their's are becoming the norm and not the exception. Then it's no longer a tragedy or someone else's loss. Then it becomes a traversty and everyone's problem, if for no other reason than manifestly unfair economic equilibriums are always politically unstable.


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