Trade at international ports is on track to drop more than 10% this year,
one of the steepest declines ever, according to a new maritime industry
report.
Cargo ships will carry 27 million fewer containers by year's end than they
did in 2008 -- a reduction roughly equivalent to all of the cargo containers
handled by the five busiest U.S. seaports in a typical year, according to
London-based Drewry Shipping Consultants' Container Forecaster Report.
Showing posts with label LA Times. Show all posts
Showing posts with label LA Times. Show all posts
Wednesday, July 8, 2009
Trade Volumes Down
A very interesting read over at the LA Times: Here're the opening lines:
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, October 12, 2008
Reading about Finance in the LA Times 1 (part 1 of an ongoing series)
This is the first post of an ongoing series to see how finance is discursively* created in the mass media. Mostly, in the Los Angeles Times, since it is the Southern California paper that I read daily.
There is an interesting piece in the Oct 19, 2008 issue of the LA Times, Business section, entitled, "Sure, it's scary, but resist the impulse to flee, advisors say" by Josh Friedman and Peter Hono. The basic story here is that financial advisors are getting calls from their clients who are worried about losing their investments in the equities market and who would like to move their money to 'safer' investments (i.e., those investments that don't risk losing value over time). Here's a typical story in the piece,
The financial planners interviewed for the piece recognize that these are critical times for the investment minded. There is a belief that the risk for some sort of financial collapse is quite high at the moment. Bob Smoke is interviewed about the US Gov't plan(s) to "bail-out" the banking industry. He is quoted as saying,
The story claims that it is a "natural impulse" to want to "do something" during times of great financial upheaval. So, the advice given here is to,
The logic here is to keep your invested money in place, to trust that the "system" will provide in the long term. For the anxious many, the advice is to do little things that make you feel less anxious. Brent Kessell (another financial planner) offers this advice to assuage investor anxiety,
The piece closes on a bullish note, citing comments made by Mark Wilson, a planner for an ironically titled firm called the Tarbox Group.
But, Smoke's comment is quite revealing, in the sense that it acts as a symbolic rupture in the otherwise dominant narrative of "stay the course," profit is inevitable, as markets always recover to the up side.
Smoke's comment suggests the precise reason for the bull market of the last 30 years, banks have been extending credit in greater and greater amounts. This is something called a "hyper-expansion of credit." Check out the following graph of credit market debt as a % of GDP from the St. Louis Fed.
1952 is a good year, because it is a relative low point after the credit hyper-expansion that preceded the deflation of that credit bubble in the 1930's (aka The Great Depression-- where credit debt reached about 270% of GDP). Note that where credit debt had remained relatively flat during the two decades between 1960 and 1978, the amount increased sharply after that.
What happened in the stock market during this period? Check out the following from stockcharts.com
After the bull market of the early 1960's (and associated credit expansion), the overall S&P index flatlined for the better part of a decade, then just as credit expanded at the close of the 1970's, the S&P took off! That is until the dot com bubble burst in early 2001, this was followed by the real-estate boom that ended in 2006.
So, we are left with a question for our financial planners. Should we be planning for a boom in equities? A boom in any asset class for that matter? Bob Smoke seems to be on to something, the banks must continue the expansion of credit to keep the markets growing. Can banks do so? The total credit debt outstanding is now 350% of GDP. It has never been this high before!
Seems to me that the newspaper needs to review its assumptions. Running for the hills seems pretty rational given the current state of indebtedness. My bet is that banks cannot create more credit and individuals, businesses, and government cannot take on more credit debt (I owe Mike Shedlock & the mysteriously named ilargi and Stoneleigh a debt of gratitude for much of my understanding of these financial matters).
Bob Smoke's comments create an eruption in an otherwise business as usual piece of reporting that should command our notice, "our whole system could come apart."
In closing this post, I am reminded of a children's rhyme that seems more meaningful now than ever.
Humpty Dumpty sat on the wall.
Humpty Dumpty had a great fall.
All the kings horses and all the kings men,
Couldn't put Humpty Dumpty back together again!
PS: Don't read this post as investment advice. You are on your own in that endeavor!
PSS: Thought folks might like to see the pattern of nominal GDP growth for the period 1952-2006 to help make sense of the 1st graph above.
* Note: By discourse, I am thinking of how understandings of daily life are produced in the everyday use of language and symbols. Discourse is not merely in the symbols or language themselves, but emerges through the interaction between their authors and their readers. So, naturally, these investigations will inevitably involve my reading of the symbolic content, other may certainly come away with a very different interpretation of meaning.
There is an interesting piece in the Oct 19, 2008 issue of the LA Times, Business section, entitled, "Sure, it's scary, but resist the impulse to flee, advisors say" by Josh Friedman and Peter Hono. The basic story here is that financial advisors are getting calls from their clients who are worried about losing their investments in the equities market and who would like to move their money to 'safer' investments (i.e., those investments that don't risk losing value over time). Here's a typical story in the piece,
Investor Mark Adelson sensed trouble in the stock market last month and decided to bail. The 59-year-old San Bernardino resident moved about $100,000 out of several stock funds into a corporate bond fund.Adelson is looking to 'safeguard' his investments, essentially trying to find a class of investment where "the bottom" won't "drop out." Seems like a rational attempt to mitigate his losses to me.
A couple of weeks later, Adelson, an engineer, decided the bonds weren't safe either, and he now has that portion of his nest egg in a money market fund.
Adelson is aware that most financial advisors advocate staying put during market downturns. But he really felt he had to do something to safeguard his retirement funds.
"I understand you can't really time the market, but I just feel uncomfortable leaving my money somewhere when I see the bottom dropping out," he said.
The financial planners interviewed for the piece recognize that these are critical times for the investment minded. There is a belief that the risk for some sort of financial collapse is quite high at the moment. Bob Smoke is interviewed about the US Gov't plan(s) to "bail-out" the banking industry. He is quoted as saying,
"If this isn't done correctly, our whole system could come apart," Smoke said. "If banks can't lend money, we're going to have so much panic in the streets. We already have so many people out of work."Smoke is implying that should the Federal Government's efforts fail, "panic" will take over "in the streets," implying that people will make irrational choices en masse perhaps moving their investments out of riskier classes all at once!
The story claims that it is a "natural impulse" to want to "do something" during times of great financial upheaval. So, the advice given here is to,
"guide clients into new, more conservative places to park just a portion of their assets, while leaving the rest in place. That way, people can feel as if they're doing something while avoiding selling their entire portfolio at the bottom of the market."Note the emphasis here on the ability to "feel as if they're doing something" while not really doing anything of substance. The argument being that, in the long run, equities will always return the best rate of return on your investments. The other argument being, not to sell at the market bottom.... The irony being you are also warned about selling at the market top!
The logic here is to keep your invested money in place, to trust that the "system" will provide in the long term. For the anxious many, the advice is to do little things that make you feel less anxious. Brent Kessell (another financial planner) offers this advice to assuage investor anxiety,
Rather than shift investments during downturns, Kessel believes, people are better off cutting their spending 5% to 15%. Doing so, he said, "has a huge effect on financial security. If you decrease your spending, you need a lot less to retire."Kessell is arguing that investment portfolios should be left to the market managers, while consumers manage anxiety by cutting consumption. Naturally, this would also have a HUGE impact on consumer spending (which amounts to about 70% of US GDP each year). While this is a gross simplification, this line of reasoning suggests that it is much better for the national economy to suffer a 3% to 10% decline in GDP rather than encourage investor's moving out of equities.
The piece closes on a bullish note, citing comments made by Mark Wilson, a planner for an ironically titled firm called the Tarbox Group.
Mark Wilson, vice president of planning firm Tarbox Group in Newport Beach, said he had seen some signs that stocks are undervalued -- which means that they could come back. Investors who buy undervalued stock in healthy companies now might profit when the market turns around, he said.Note the overall trajectory of the news story.
- It starts with the idea that investors are nervous about keeping their money in risky asset classes like stocks. Some of these investors would like to move their money into lower risk categories like bonds or money market funds.
- The story moves on to financial planners, who are presented as expert managers of personal investments, their advice is to make little symbolic changes, while keeping the lions share of investments unchanged (notably those investments in stocks).
- The story finishes with a wholly bullish endorsement of equities by a financial planner, people who buy stock now "in healthy companies" might profit "when the market turns around."
- That people should invest their money and take a risk in losing it.
- That investments should generate a positive rate of return, year after year without fail.
- That when people see their investments losing money, they "naturally" fear losing their investments and "impulsively" act to protect their money from further loss. But they are then advised to "stay the course" that, in the long run, they will see a "profit."
- That investments should be entrusted to "the market" (meaning stock market) and its managers, who behave rationally and so do not act on "natural impulses" and "fear."
"If this isn't done correctly, our whole system could come apart," Smoke said. "If banks can't lend money, we're going to have so much panic in the streets. We already have so many people out of work."Smoke is worried that banks need to be able to "lend money" and if they cannot, "our whole system could come apart." Smoke is alone among his peers in this piece however, the other financial planners are of one mind: don't move your money around too much ... that locomotive that appears to be headed straight for you is likely only a figment of your anxious mind ... Indeed, now might be a good time to put more of your money right down in the middle of the train tracks, because you might profit when that train (the market) "turns around."
But, Smoke's comment is quite revealing, in the sense that it acts as a symbolic rupture in the otherwise dominant narrative of "stay the course," profit is inevitable, as markets always recover to the up side.
Smoke's comment suggests the precise reason for the bull market of the last 30 years, banks have been extending credit in greater and greater amounts. This is something called a "hyper-expansion of credit." Check out the following graph of credit market debt as a % of GDP from the St. Louis Fed.
1952 is a good year, because it is a relative low point after the credit hyper-expansion that preceded the deflation of that credit bubble in the 1930's (aka The Great Depression-- where credit debt reached about 270% of GDP). Note that where credit debt had remained relatively flat during the two decades between 1960 and 1978, the amount increased sharply after that.
What happened in the stock market during this period? Check out the following from stockcharts.com
After the bull market of the early 1960's (and associated credit expansion), the overall S&P index flatlined for the better part of a decade, then just as credit expanded at the close of the 1970's, the S&P took off! That is until the dot com bubble burst in early 2001, this was followed by the real-estate boom that ended in 2006.
So, we are left with a question for our financial planners. Should we be planning for a boom in equities? A boom in any asset class for that matter? Bob Smoke seems to be on to something, the banks must continue the expansion of credit to keep the markets growing. Can banks do so? The total credit debt outstanding is now 350% of GDP. It has never been this high before!
Seems to me that the newspaper needs to review its assumptions. Running for the hills seems pretty rational given the current state of indebtedness. My bet is that banks cannot create more credit and individuals, businesses, and government cannot take on more credit debt (I owe Mike Shedlock & the mysteriously named ilargi and Stoneleigh a debt of gratitude for much of my understanding of these financial matters).
Bob Smoke's comments create an eruption in an otherwise business as usual piece of reporting that should command our notice, "our whole system could come apart."
In closing this post, I am reminded of a children's rhyme that seems more meaningful now than ever.
Humpty Dumpty sat on the wall.
Humpty Dumpty had a great fall.
All the kings horses and all the kings men,
Couldn't put Humpty Dumpty back together again!
PS: Don't read this post as investment advice. You are on your own in that endeavor!
PSS: Thought folks might like to see the pattern of nominal GDP growth for the period 1952-2006 to help make sense of the 1st graph above.
* Note: By discourse, I am thinking of how understandings of daily life are produced in the everyday use of language and symbols. Discourse is not merely in the symbols or language themselves, but emerges through the interaction between their authors and their readers. So, naturally, these investigations will inevitably involve my reading of the symbolic content, other may certainly come away with a very different interpretation of meaning.
Subscribe to:
Posts (Atom)
