You ever wonder what happened to pay as you go? You know, that silly old idea that if you have the money for something you need or want you could buy it. But, if you did not have the money you could not buy it. If it was an expensive item, you would need to set some money aside each pay period until you had saved enough to buy that item?
As hard as it is to believe, this quaint old idea was promoted by major corporations (albeit for completely self-interested reasons). I have read that Henry Ford used to send social workers out to the families of his employees to help them understand that they should be careful how they spent their money. Not to blow it on short term wants like entertainment or booze, so that they could save and eventually buy one of Mr. Ford's cars and other home appliances the factories churned out. After the great depression, people tended not to buy on credit. They knew that the future might actually offer less that the present. The future was simply to uncertain to risk one's prosperity.
Of course, we have been living in the era of easier and easier credit over the past few decades. This is the era when we have been encouraged to spend freely, to buy today and worry about it till tomorrow. We live in the era of the unimaginably prosperous tomorrow. Tomorrow, we will be wealthier. Tomorrow, we will be healthier. Tomorrow we wont be such jack asses toward one another. Tomorrow, always tomorrow.
So what brings these musings on a cold fall night in late November?
There word coming out of Team Obama that very shortly after he takes office, the new president will sign into law a several hundred billion dollar 'stimulus' package as a means of 'saving the economy.' I suppose that this is laudable, though we have yet to see the details, and, given the Clintonistas that Obama is bringing back to the white house, I don't think there much hope that this will be more than yet another give away to large corporations. I don't think anyone realizes how conservative Barak Obama is. Well, we are all gonna find out, now aren't we?
In any case, I don't intend to complain about Obama's plan since so little is known about what it might include. My interest is in how the wheels have come off the fiscal ship of state. The idea that the USG is prepared to run trillion dollar deficits and more each and every year, for as long as it takes, to somehow solve the explosion of a global debt bomb is the very height of stupidity. More debt to solve the problem of too much debt, huh?
How is this possible. Well, I already wrote about magical thinking. But, more that that is a kind of magical thinking that befits the label Pollyannaish! The idea that, if we spend all of the future's prosperity today, the future will be so much more prosperous than it otherwise would have been that we will be able to have everything that we want today and still pay for everything we will want in the future and then some. Man, talk about the miracle of loaves and fishes. It is as if you went to the fridge for a late night binge with the expectation that by eating extra today there will be even more in cold storage tomorrow! It can happen! It's just like magic!
This is surely folly. Though, to be honest, the last thirty years have been mostly folly. You cannot borrow from the future ad-infinitum. One day, that future arrives, and it is much more impoverished than anyone imagined when they were robbing it blind all those years now past.
Monday, November 24, 2008
Saturday, November 22, 2008
Fun with VMT and Gasoline!
When I did my fieldwork in the islands of Chuuk Lagoon in the late 1990's, one of the big concerns had to do with kids sniffing gasoline to get high. It was a serious problem for boys in the early teens. When I traveled there again in summer 2008, gasoline had hit $6.50 a gallon (US) and was creating a different sort of crisis altogether.
These islands were communities, after all, that had been 'developed' by the United States in an era of relative cheap petroleum. With American assistance, they had been able to abandon most non-gasoline powered transportation that they had once been famous for in favor of fiberglass skiffs with a 30 or 50 HP outboard motor. By the summer of 2008, the cost of gasoline consumption for daily business was really hurting these islander families. After all, the minimum wage was about $1 an hour, so much of one's daily earnings could have been easily eaten by the cost of traveling from one's home island to town (about a 20 min. to 1.5 hour trip depending on where you lived in the lagoon). People in the islands felt these costs acutely, and were keep to think of ways to offset their extraordinary fuel costs. Most often, people simply traveled less or traveled with more people in the boat to offset the per person fuel charge.
So, back here at home, we had high summer gasoline costs of our own. Like the people of Chuuk, we have long adopted a rather inefficient means of transportation, building one of the largest networks of roadways for transportation in the world. American cities are sprawlapaloozas: vast oceans of low density housing that emanate forth in all directions from multipolar urban centers. These centers have largely been abandoned, or were built to never be properly peopled, except by business use during bankers' hours. Most people live far from their places of work and must do a certain amount of commuting each day just to earn enough to pay the mortgage or rent in their standard issue American Dream House. This meant that households had to spend more and more on fuel costs just to make their living from week to week and had less and less for things like restaurants, shopping malls, and, of course, the mortgage payment for their overvalued standard issue American Dream House. This summer past seemed to represent some sort of tipping point, after not really changing their behavior much, Americans started trading big for small (cars that is -- not houses!) and began to drive less. The were eating out less, they were falling into foreclosure more. -- Though, to be fair this latter bit had more to do with stupid lending practices during the rush to buy overprices houses, than fuel costs per se.
Of course, that was last summer ... more then three months -- and one market crash ago....
Ah, what a difference a couple of months make! From their summer highs, gasoline prices have collapsed. My wife just paid $2.04 today, down from a summer high of about $4.50 a gallon in our neighborhood. Now, surely, the collapse in fuel costs is a welcome sign. But, for me it has raised an interesting question. Is this a reflection of falling demand in the face of over capacity in gasoline production? Shutter the thought, as such a situation would signal the sort of economic downturn the United States had not seen since 1980, the last time Americans consumed so much less in their pursuit of their sprawlapalooza dreams.
I wondered about this because it is possible that this price collapse represents some sort of perverse unwinding of bad bets in the commodities markets (though I profess true ignorance in these matters of commodity investors -- there are much better blogs for these sorts of more informed speculative tomfoolery). It certainly is possible that so many people had bet long on the price of petroleum that they now were racing to cover these bad bets, selling contracts to anyone who would buy them, driving the price of oil ever south, and the costs of refining the product southward along with them. The savings then being passed on to a welcoming consuming public. -- Though, again, I suspect that it doesn't really work this way ...
Well, all this sort of wunderin' got me to thinking about VMT (Vehicle Miles Traveled). This is a little statistic the federal government collects to see how much Americans are lovin' their massive highways and byways system. I got wind of it in a series of posts on The Oil Drum by Stuart Staniford by in 2006, who at the time, was working on VMT as a measure of economic productivity. Seems reasonable, I suppose to, wonder if economic activity is reflected in the Vehicle Miles Traveled from month to month, or year to year in the ol' U.S of A.
I wondered further, were there more recent reports of VMT from the USG than those from 2006? Did they tell us anything about how much folks are driving as it might relate to economic downturns and all that?
Well, turn out there is! Sort of. I pulled out this image from a report for the White House earlier this year:
This graph shows the VMT for each month from Jan. 1992 to Jan 2008. It tends to be jagged 'cause people don't like to drive in the winter when it is cold and snowy, but love to drive in the summer when it is warm and people are frolicking half-naked on beaches throughout the country. I added the polynomial regression line (with R-quared) to get a sense of average changes over time. The resulting line show slowing in 2006 with a pronounced leveling off through 2007 after continuous linear growth for the period staring in 1992. Also, of note is that the maximum VMT has been flat since summer of 2005, more or less, after growing substantially each year since this series began in 1992.
Conclusion: VMT not growing! Sprawlapalooza on hiatus.
Now, that Jan. 2008 date had me bothered this morning as well. I searched, but couldn't find more contemporary data available online. But, I have been tracking another measure in the Energy Information Agency's weekly petroleum report. It had been showing declining gasoline consumption for all of 2008 when compared to 2007.
The most recent "Short Term Energy Outlook" by the EIA (Nov. 12, 2008) reports the following for US consumption of petroleum products.
All this is a sort of confirmation that this era of economic growth just past is now in recession. I for one welcome the savings in my household budget. But, it also reflects real economic contraction that has accelerated since the start of 2008, judging from the rise in unemployment rates. The associated unemployment and lowered household earnings almost certainly makes the news of declining gasoline prices bitter sweet.
These islands were communities, after all, that had been 'developed' by the United States in an era of relative cheap petroleum. With American assistance, they had been able to abandon most non-gasoline powered transportation that they had once been famous for in favor of fiberglass skiffs with a 30 or 50 HP outboard motor. By the summer of 2008, the cost of gasoline consumption for daily business was really hurting these islander families. After all, the minimum wage was about $1 an hour, so much of one's daily earnings could have been easily eaten by the cost of traveling from one's home island to town (about a 20 min. to 1.5 hour trip depending on where you lived in the lagoon). People in the islands felt these costs acutely, and were keep to think of ways to offset their extraordinary fuel costs. Most often, people simply traveled less or traveled with more people in the boat to offset the per person fuel charge.
So, back here at home, we had high summer gasoline costs of our own. Like the people of Chuuk, we have long adopted a rather inefficient means of transportation, building one of the largest networks of roadways for transportation in the world. American cities are sprawlapaloozas: vast oceans of low density housing that emanate forth in all directions from multipolar urban centers. These centers have largely been abandoned, or were built to never be properly peopled, except by business use during bankers' hours. Most people live far from their places of work and must do a certain amount of commuting each day just to earn enough to pay the mortgage or rent in their standard issue American Dream House. This meant that households had to spend more and more on fuel costs just to make their living from week to week and had less and less for things like restaurants, shopping malls, and, of course, the mortgage payment for their overvalued standard issue American Dream House. This summer past seemed to represent some sort of tipping point, after not really changing their behavior much, Americans started trading big for small (cars that is -- not houses!) and began to drive less. The were eating out less, they were falling into foreclosure more. -- Though, to be fair this latter bit had more to do with stupid lending practices during the rush to buy overprices houses, than fuel costs per se.
Of course, that was last summer ... more then three months -- and one market crash ago....
Ah, what a difference a couple of months make! From their summer highs, gasoline prices have collapsed. My wife just paid $2.04 today, down from a summer high of about $4.50 a gallon in our neighborhood. Now, surely, the collapse in fuel costs is a welcome sign. But, for me it has raised an interesting question. Is this a reflection of falling demand in the face of over capacity in gasoline production? Shutter the thought, as such a situation would signal the sort of economic downturn the United States had not seen since 1980, the last time Americans consumed so much less in their pursuit of their sprawlapalooza dreams.
I wondered about this because it is possible that this price collapse represents some sort of perverse unwinding of bad bets in the commodities markets (though I profess true ignorance in these matters of commodity investors -- there are much better blogs for these sorts of more informed speculative tomfoolery). It certainly is possible that so many people had bet long on the price of petroleum that they now were racing to cover these bad bets, selling contracts to anyone who would buy them, driving the price of oil ever south, and the costs of refining the product southward along with them. The savings then being passed on to a welcoming consuming public. -- Though, again, I suspect that it doesn't really work this way ...
Well, all this sort of wunderin' got me to thinking about VMT (Vehicle Miles Traveled). This is a little statistic the federal government collects to see how much Americans are lovin' their massive highways and byways system. I got wind of it in a series of posts on The Oil Drum by Stuart Staniford by in 2006, who at the time, was working on VMT as a measure of economic productivity. Seems reasonable, I suppose to, wonder if economic activity is reflected in the Vehicle Miles Traveled from month to month, or year to year in the ol' U.S of A.
I wondered further, were there more recent reports of VMT from the USG than those from 2006? Did they tell us anything about how much folks are driving as it might relate to economic downturns and all that?
Well, turn out there is! Sort of. I pulled out this image from a report for the White House earlier this year:
This graph shows the VMT for each month from Jan. 1992 to Jan 2008. It tends to be jagged 'cause people don't like to drive in the winter when it is cold and snowy, but love to drive in the summer when it is warm and people are frolicking half-naked on beaches throughout the country. I added the polynomial regression line (with R-quared) to get a sense of average changes over time. The resulting line show slowing in 2006 with a pronounced leveling off through 2007 after continuous linear growth for the period staring in 1992. Also, of note is that the maximum VMT has been flat since summer of 2005, more or less, after growing substantially each year since this series began in 1992.Conclusion: VMT not growing! Sprawlapalooza on hiatus.
Now, that Jan. 2008 date had me bothered this morning as well. I searched, but couldn't find more contemporary data available online. But, I have been tracking another measure in the Energy Information Agency's weekly petroleum report. It had been showing declining gasoline consumption for all of 2008 when compared to 2007.
The most recent "Short Term Energy Outlook" by the EIA (Nov. 12, 2008) reports the following for US consumption of petroleum products.
Consumption of all petroleum products is projected to decline substantially in 2008, driven down by the increase in prices and by a weakening economy during the second half of the year. Total domestic petroleum consumption is projected to average 19.6 million bbl/d in 2008, down 1.1 million bbl/d, or 5.4 percent, from the 2007 average (U.S. Petroleum Products Consumption Growth). This marks the first time since 1980 that annual total petroleum consumption is expected to decline by more than 1 million bbl/d. In 2008, motor gasoline consumption is projected to decline by 280,000 bbl/d, or 3 percent, and distillate fuel consumption is projected to decline by 250,000 bbl/d, or 6 percent. In 2009, total petroleum product consumption is projected to sink by a further 250,000 bbl/d, or 1.3 percent. This decline is more than twice that projected in the previous Outlook.Ouch! Petroleum consumption down 1.1 million barrels per day, the first decline of such magnitude since 1980! Gasoline demand down 280,000 barrels per day. I know Toyota has sold a lot of their Prius line, but this cannot be a function of the increased efficiency of the gasoline powered US transportation fleet. VMT is surely down significantly for the year of 2008, any associated economic activity along with it.
All this is a sort of confirmation that this era of economic growth just past is now in recession. I for one welcome the savings in my household budget. But, it also reflects real economic contraction that has accelerated since the start of 2008, judging from the rise in unemployment rates. The associated unemployment and lowered household earnings almost certainly makes the news of declining gasoline prices bitter sweet.
Sunday, November 9, 2008
Magical Thinking and Economic Stimulus
One of the classical anthropological concepts in the field of cultural anthropology is that of magical thinking. To get of flavor of what this phrase means, let's take a look at the wikipedia definition,
Now, in the old days of Frazer and Malinowski, magical thinking, as an explanatory concept, was used to distinguish the pre-modern peoples of the world from the modern. It took the work of more contemporary anthropologists and comparative cognitive scientists like Ed Hutchins and Michael Cole and many others to show that people, particularly non-"modern" people, are more "scientific" or "rational" in their reasoning that had been previously thought and the work of Bruno Latour and his colleagues to show that "moderns" like scientists deploy more magical thinking in their work than had been previously thought.
I am interested in magical thinking today because it seems to run rampant in contemporary discussions of what to do about the sagging economy in the United States, and the world more generally.
The LA Times for today, Nov. 9, 2008, has a front page article titled, "Economists see revival of of an old fix," reported by Richard Simon and Jim Puzzanghera. In the article, they report on the changing beliefs among policy advisers and law makers regarding the sort of "economic stimulus" that might offer a solution to the current economic malaise. I suppose that everyone remembers the stimulus checks that were sent out in the late spring and early summer of this year. Those checks were intended to get the American consumer spending again. The purpose of which, according to Douglas Elmendorf, a former economist for the bankermen at the federal reserve, was to stave off what was believed at the time to be, "a very sharp, short drop in economic activity." Once the consumers received their cash, it was believed, they would spend it in whatever way they though best, with multiplier effects extending out into the broader economy, allowing economic growth to accelerate, or at least continue.
Seems, though that the economic stimulus Plan A didn't work. We have crack reporting in the Parade Magazine that accompanies the Sunday LA Times this morning that of the $78 billion in checks that were sent to American households, only $12 billion were spent! The rest was either saved or used to pay down household debt. No wonder, household sector debt remains at record levels (having gone from about 70% of GDP in 1998 to over 100% of GDP just ten years later!). Moreover, the money that was spent did not necessarily help the American economy exclusively. I have read that of that $12 billion that was spent, much of it paid for items made in China and other countries, meaning that many of the purported multiplier effects of the new consumer spending went to help workers and their employers overseas!
Why didn't stimulus Plan A work? My guess is that the policy essentially reflects magical thinking on the part of its designers. Rather than take a good hard look at how we got into the current economic crisis and how households in particular were coming to really struggle with unprecedented debt together with a nasty spike in commodity prices from corn to gasoline, the preference was to base the policy on an imaginary American consumer and an imaginary American, indeed global economy.
Anyone who rationally studied the credit bubble of the 2000's (and the slower paced credit expansion of the last 30 years) would realize that economists like Douglas Elmendorf, were simply fools on parade. The economy was clearly not in store for a "sharp, short drop in economic activity." The economy had already been in the early phases of a long, protracted credit crisis going back to early 2007! As we now know, the credit crisis has only worsened since that time. Indeed, many non-economists not employed by the bankermen had been working diligently in civil society communities on the blogosphere to do just that, rationally study the present economic disaster. To come to the conclusion that the economy was in for a short, sharp decline absent the economic stimulus, and with it likely to continue on a torrent of expansion was simply a case of magical thinking, not based in a careful study of our current economic situation at all.
So, do we have more policies inspired by the magical thinking orf our dear elites and their subordinate teams of crack advisers. Based on the reporting in the remainder of the LA Times article the answer clearly is, "YES." Elemendorf suggests that, "Now we're in a situation where it looks like were going to be in a prolonged downturn." So, since there is plenty of time to get going, the federal government can think of slower policy responses, specifically stimulus Plan B that would involve spending about $100 billion on improving the nation's infrastructure. The goal here is to create new jobs, rather than to stimulate the economy directly through instant consumer spending. The US Government could spend as little as $75 billion and create 1 million new jobs (again with the assumptions that there would be multiplier effects for each dollar spent by the federal government). Indeed, Mark Zandi, an economist for Moody's Economy.com estimates that each dollar of USG spending on construction stimulus will generate $1.59 of new economic activity.
This last bit should serve as warning enough that some magical thinking is driving the latest policy debate. If it were the case that government spending on infrastructure generated a 59% return we could safely rely on government construction spending as the mainstay of the entire US economy. Unfortunately, missing in such assertions is the critical question, "What the heck will those additional dollars, each and everyone borrowed from the taxpayers of the future, be spent on?" New roads? To where? The road infrastructure of the US is already highly developed. School improvements? Terrific idea for the kids, but this cannot generate additional economic growth in the near term! People do not use the schools to generate present economic activity, they are places for investment in future human capital (i.e, children who will become educated adults). It may be nice to have a school without leaking pipes or with nice new shelving, but this is not likely to make much of an impact in how well educated our children will be in the future. Once the money is spent, it is not likely to generate additional work. Green jobs? What the heck are those? And, if they cannot be sustained by additional revenue growth in those industries after receiving government support in the one time stimulus package, they will not remain long.
Indeed, it is this last point that has me worried about the magical thinkers of our policy makers and their bankermen. If the federal government spends $100 billion more this year on construction of the infrastructure, it is not likely to create more jobs at all! Rather the stimulus Plan B can only hope to keep some jobs in place that will otherwise be lost in this worsening downturn. California and other states are staring into the abyss as we speak. Layoffs of state employees are highly likely without some federal support to shore up their current fiscal year budgets. No doubt some of this stimulus will be targeted at faltering state budgets. So, in reality, the best anyone can hope for is that the additional $100 billion of federal spending will help keep some of the jobs (against the aggregate of jobs in the nation as a whole). It certainly cannot hope to add new jobs, nor can it hope to sustain growth into the future-- unless the additional spending becomes permanent--worsening the budget deficit all the more.
So, on balance, we probably could use less magical thinking, and more cold, hard realism. There is no way we can dig out of the bubble the bankermen created with additional government spending. The global economy needs to work off the credit excesses of the last three decades. The only way for that to happen is to bring spending in line with current economic realities (rather than in line with the fantasies of endless future prosperity and growth). Spending less of necessity means fewer jobs. Coming to grips with that reality and thinking of ways to financially help struggling families and individuals until the economy stabilizes once again (at a much lowered state) may be the least magical policy option going forward.
In anthropology, psychology, and cognitive science, magical thinking is nonscientific causal reasoning that often includes such ideas as the ability of the mind to affect the physical world, correlation equaling causation, the law of contagion, the power of symbols, and the meaningfulness of synchronicity.
Magical thinking can occur when one simply does not understand possible causes, as illustrated by Sir Arthur C. Clarke's suggestion that "any sufficiently advanced technology is indistinguishable from magic" (see Clarke's three laws), but can also occur in response to situations that are largely random or chaotic, such as a coin toss, as well as in situations that one has little or no control over, especially those one is emotionally invested in. (Indeed, this can be seen as a special case of failure to understand possible causes: specifically, a failure to understand the laws of probability that guarantee the occurrence of coincidences and seeming patterns.)
Sir James George Frazer and Bronisław Malinowski said that magic is more like science than religion, and that societies with magical beliefs often had separate religious beliefs and practices. The difference between science and magical thinking emerges in 17th century philosophy. Both worldviews are mechanistic and based on causality, but the scientific worldview is distinguished by the scientific method and by skepticism, requiring the falsifiability of any scientific hypothesis.
Now, in the old days of Frazer and Malinowski, magical thinking, as an explanatory concept, was used to distinguish the pre-modern peoples of the world from the modern. It took the work of more contemporary anthropologists and comparative cognitive scientists like Ed Hutchins and Michael Cole and many others to show that people, particularly non-"modern" people, are more "scientific" or "rational" in their reasoning that had been previously thought and the work of Bruno Latour and his colleagues to show that "moderns" like scientists deploy more magical thinking in their work than had been previously thought.
I am interested in magical thinking today because it seems to run rampant in contemporary discussions of what to do about the sagging economy in the United States, and the world more generally.
The LA Times for today, Nov. 9, 2008, has a front page article titled, "Economists see revival of of an old fix," reported by Richard Simon and Jim Puzzanghera. In the article, they report on the changing beliefs among policy advisers and law makers regarding the sort of "economic stimulus" that might offer a solution to the current economic malaise. I suppose that everyone remembers the stimulus checks that were sent out in the late spring and early summer of this year. Those checks were intended to get the American consumer spending again. The purpose of which, according to Douglas Elmendorf, a former economist for the bankermen at the federal reserve, was to stave off what was believed at the time to be, "a very sharp, short drop in economic activity." Once the consumers received their cash, it was believed, they would spend it in whatever way they though best, with multiplier effects extending out into the broader economy, allowing economic growth to accelerate, or at least continue.
Seems, though that the economic stimulus Plan A didn't work. We have crack reporting in the Parade Magazine that accompanies the Sunday LA Times this morning that of the $78 billion in checks that were sent to American households, only $12 billion were spent! The rest was either saved or used to pay down household debt. No wonder, household sector debt remains at record levels (having gone from about 70% of GDP in 1998 to over 100% of GDP just ten years later!). Moreover, the money that was spent did not necessarily help the American economy exclusively. I have read that of that $12 billion that was spent, much of it paid for items made in China and other countries, meaning that many of the purported multiplier effects of the new consumer spending went to help workers and their employers overseas!
Why didn't stimulus Plan A work? My guess is that the policy essentially reflects magical thinking on the part of its designers. Rather than take a good hard look at how we got into the current economic crisis and how households in particular were coming to really struggle with unprecedented debt together with a nasty spike in commodity prices from corn to gasoline, the preference was to base the policy on an imaginary American consumer and an imaginary American, indeed global economy.
Anyone who rationally studied the credit bubble of the 2000's (and the slower paced credit expansion of the last 30 years) would realize that economists like Douglas Elmendorf, were simply fools on parade. The economy was clearly not in store for a "sharp, short drop in economic activity." The economy had already been in the early phases of a long, protracted credit crisis going back to early 2007! As we now know, the credit crisis has only worsened since that time. Indeed, many non-economists not employed by the bankermen had been working diligently in civil society communities on the blogosphere to do just that, rationally study the present economic disaster. To come to the conclusion that the economy was in for a short, sharp decline absent the economic stimulus, and with it likely to continue on a torrent of expansion was simply a case of magical thinking, not based in a careful study of our current economic situation at all.
So, do we have more policies inspired by the magical thinking orf our dear elites and their subordinate teams of crack advisers. Based on the reporting in the remainder of the LA Times article the answer clearly is, "YES." Elemendorf suggests that, "Now we're in a situation where it looks like were going to be in a prolonged downturn." So, since there is plenty of time to get going, the federal government can think of slower policy responses, specifically stimulus Plan B that would involve spending about $100 billion on improving the nation's infrastructure. The goal here is to create new jobs, rather than to stimulate the economy directly through instant consumer spending. The US Government could spend as little as $75 billion and create 1 million new jobs (again with the assumptions that there would be multiplier effects for each dollar spent by the federal government). Indeed, Mark Zandi, an economist for Moody's Economy.com estimates that each dollar of USG spending on construction stimulus will generate $1.59 of new economic activity.
This last bit should serve as warning enough that some magical thinking is driving the latest policy debate. If it were the case that government spending on infrastructure generated a 59% return we could safely rely on government construction spending as the mainstay of the entire US economy. Unfortunately, missing in such assertions is the critical question, "What the heck will those additional dollars, each and everyone borrowed from the taxpayers of the future, be spent on?" New roads? To where? The road infrastructure of the US is already highly developed. School improvements? Terrific idea for the kids, but this cannot generate additional economic growth in the near term! People do not use the schools to generate present economic activity, they are places for investment in future human capital (i.e, children who will become educated adults). It may be nice to have a school without leaking pipes or with nice new shelving, but this is not likely to make much of an impact in how well educated our children will be in the future. Once the money is spent, it is not likely to generate additional work. Green jobs? What the heck are those? And, if they cannot be sustained by additional revenue growth in those industries after receiving government support in the one time stimulus package, they will not remain long.
Indeed, it is this last point that has me worried about the magical thinkers of our policy makers and their bankermen. If the federal government spends $100 billion more this year on construction of the infrastructure, it is not likely to create more jobs at all! Rather the stimulus Plan B can only hope to keep some jobs in place that will otherwise be lost in this worsening downturn. California and other states are staring into the abyss as we speak. Layoffs of state employees are highly likely without some federal support to shore up their current fiscal year budgets. No doubt some of this stimulus will be targeted at faltering state budgets. So, in reality, the best anyone can hope for is that the additional $100 billion of federal spending will help keep some of the jobs (against the aggregate of jobs in the nation as a whole). It certainly cannot hope to add new jobs, nor can it hope to sustain growth into the future-- unless the additional spending becomes permanent--worsening the budget deficit all the more.
So, on balance, we probably could use less magical thinking, and more cold, hard realism. There is no way we can dig out of the bubble the bankermen created with additional government spending. The global economy needs to work off the credit excesses of the last three decades. The only way for that to happen is to bring spending in line with current economic realities (rather than in line with the fantasies of endless future prosperity and growth). Spending less of necessity means fewer jobs. Coming to grips with that reality and thinking of ways to financially help struggling families and individuals until the economy stabilizes once again (at a much lowered state) may be the least magical policy option going forward.
Sunday, November 2, 2008
Household Expenditures in Historic Perspective
People who know me, know that I have been writing about economics from the perspectives of families and households for most of my career. The main agenda is trying to understand how people are able to forge a meaningful life out of the project of organizing and sustaining a daily routine of everyday activities. The organization of activities reflect the social, cultural, material, biophysiological, and temporal resources and barriers (both in terms of amounts and qualities) present in their local family or personal cultural-ecology. This is a theoretical project that reflects my work with Tom Weisner at UCLA since the late 1990's.
In recent years, I have been thinking about household or family expenditures and how these relate to perceived well-being among family members. Rashmita Mistry and I have co-authored a few papers on this theme, using data from the Milwaukee sample for the New Hope evaluation. This is a timely topic, as households, families, and individuals find themselves challenged in material terms by a rapidly worselning national economy.
One theme that often comes up in contemporary discussion of the national economy is in its comparison to the Great Depression of the 1930's. For example, Pam Mertens posted an excellent piece on counterpunch.org this weekend.
I often have a discussion with an economist friend about how much the USA today looks like the USA of that earlier era. Surely, there are parallels in terms of the creation of a massive credit bubble (much larger than that of the 1920's! -- or so I understand). But, there are subtantial differences in terms of other economic issues. It is useful to sort through the similarities and differences if we ever hope to understand just whatthe heck is going on!
Let's look at household expenditures as an example. The data in the chart below are taken from the US Bureau of Labor Statistics, which has tracked income and expenditures for much of the last 100 years in the United States. In putting together this chart, I was interested in mainly in those expenditures that are essential for the ongoing organization and sustenance of family routines. These include expenditures for food (blue), housing (red), apparel and services (yellow), transportation (green), and healthcare (purple).
One obvious consideration is that expenditures on these basic necessities required over 80% of the average family pre-tax income in the earliest decades of the 20th century up to and including the middle of the 1930's! By 2006, these expenditures had dropped below 60% of average families pre-tax income (technically average income of the BLS "consumer unit").
The earliest expenditure pattern reflects a harsh reality of wage labor in the first phase of industrial capitalism, wages were kept low enough to just ensure the survival of wage earners and their families as described by Zygmunt Bauman in his book, Work, Consumerism, and the New Poor. This was seen by indutrialist employers, Bauman argues, as a means of motivating the kind of routinized, soulless factory labor the most wage earners took on. The source of motivation came from in the comparison of the "dignity of honest work" over that of the wretchedness of the lives of the non-working poor that teemed in the underbelly of London or Paris, and later in cities like Chicago and New York. Bauman writes,
Things are certainly different today. Most households have come to rely on earnings from the men and women who head them, either as individuals or jointly. Certainly, any earnings from children are much rarer than 100 years ago. What's more, the contributions of wage earners today allow consumer units to afford considerably more beyond those essential needs that assured survival. And ... these additional expenditures would come to redefine notions of family life and family well-being in America ... but that's a topic for another day.
In recent years, I have been thinking about household or family expenditures and how these relate to perceived well-being among family members. Rashmita Mistry and I have co-authored a few papers on this theme, using data from the Milwaukee sample for the New Hope evaluation. This is a timely topic, as households, families, and individuals find themselves challenged in material terms by a rapidly worselning national economy.
One theme that often comes up in contemporary discussion of the national economy is in its comparison to the Great Depression of the 1930's. For example, Pam Mertens posted an excellent piece on counterpunch.org this weekend.
I often have a discussion with an economist friend about how much the USA today looks like the USA of that earlier era. Surely, there are parallels in terms of the creation of a massive credit bubble (much larger than that of the 1920's! -- or so I understand). But, there are subtantial differences in terms of other economic issues. It is useful to sort through the similarities and differences if we ever hope to understand just whatthe heck is going on!
Let's look at household expenditures as an example. The data in the chart below are taken from the US Bureau of Labor Statistics, which has tracked income and expenditures for much of the last 100 years in the United States. In putting together this chart, I was interested in mainly in those expenditures that are essential for the ongoing organization and sustenance of family routines. These include expenditures for food (blue), housing (red), apparel and services (yellow), transportation (green), and healthcare (purple).
One obvious consideration is that expenditures on these basic necessities required over 80% of the average family pre-tax income in the earliest decades of the 20th century up to and including the middle of the 1930's! By 2006, these expenditures had dropped below 60% of average families pre-tax income (technically average income of the BLS "consumer unit").
The earliest expenditure pattern reflects a harsh reality of wage labor in the first phase of industrial capitalism, wages were kept low enough to just ensure the survival of wage earners and their families as described by Zygmunt Bauman in his book, Work, Consumerism, and the New Poor. This was seen by indutrialist employers, Bauman argues, as a means of motivating the kind of routinized, soulless factory labor the most wage earners took on. The source of motivation came from in the comparison of the "dignity of honest work" over that of the wretchedness of the lives of the non-working poor that teemed in the underbelly of London or Paris, and later in cities like Chicago and New York. Bauman writes,
It was hoped [by the elite classes] that the more the life of the non-working poor were degraded and the deeper they descended into destitution, the more tempting or at least the less unendurable would appear to the lot of those working poor who had sold their labour in exchange for the most miserable of wages, and so the cause of the work ethic would be helped and its triumph brought nearer. (p. 12)More interesting the BLS reports on who households likely relied on for its meager income in 1901,
- 95.9 percent of households had earnings from husbands
- 8.5 percent had earnings from wives
- 22.2 percent had earnings from children
- 23.3 percent had earnings from boarders or lodgers
- 14.4 percent of households had other sources of income
Things are certainly different today. Most households have come to rely on earnings from the men and women who head them, either as individuals or jointly. Certainly, any earnings from children are much rarer than 100 years ago. What's more, the contributions of wage earners today allow consumer units to afford considerably more beyond those essential needs that assured survival. And ... these additional expenditures would come to redefine notions of family life and family well-being in America ... but that's a topic for another day.
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