NRO - The National
Revulsion Online is theoretically the source of the RWNM intellectual might. At least that's what they
want you to think. In reality, they are simply the root source of many of the RWNM's lies and distortions.
The topic of the essay is
consumer spending and how the US consumer will continue to spend until the cows come home.
Consumer spending is driven by income growth, which is the function of employment, the capital-to-labor ratio, productivity, and wage and salary rates. These trends remain sound
He got one right and one wrong. He got the basic components of income growth right. He got some important trends wrong (of course, it's in NRO, so it must be true, right?)
First, productivity has increased over the last 5 years. No argument here.
Darda states employment growth remains strong but never talks about that topic again. Nice sleight of hand, Mike. If I say it in NRO and don't quote the source, it's OK. I said it; it's true.
Not really. According to the Bureau of Labor Services, there were 137,771,000 jobs in the US in January 2001. In September 2005, there were 142,646,000, for a net job creation of 4,875,000. The economy must create 150,000/month to make-up for natural job attrition, new jab market entrants etc... Bush's economic miracle has created 85,500 jobs/month on average which is just over half of what the economy needs to create. That is terrible.
Darda also fails to mention the loss of 2.8 million manufacturing jobs and 600,000 high-tech jobs.
Darda may be attempting the latest RWNM trick: finding the lowest point of job creation and then crediting the increase to Bush. According to the BLS, this would be January 2002 when there were 135,693,000 jobs in the economy. According to this RWNM method, the first year doesn't count. This is similar to a pitcher not including a game in his ERA where opposing hitters scored 10 runs. Sorry Mike - Bush wanted the job. He gets the whole job: not just the parts that look good.
Darda is probably one of the pundits who likes the household employment survey, which theoretically measures entrepreneurs who don't have a formal payroll. Because the household numbers have been better than the payroll numbers, Republicans use the household numbers to add a shine to dear leader (of course, they switch to the payroll numbers when they are better).
The problem with the household numbers is who they count - which is everybody and their dog:
People are classified as employed [in the household survey] if they did:
1.) Any work at all as paid employees during the reference week;
2.) Worked in their own business, profession, or on their own farm; or
3.) Worked without pay at least 15 hours in a family business or farm.
People are also counted as employed if they were
1.) Temporarily absent from their jobs because of illness, bad weather, vacation,
2.) Labor-management disputes, or
3.) Personal reasons.
Actually, they missed my two dogs. They got everyone else.
The BLS does not breakdown the macro number into constituent components. The number the BLS reports could include 80% who "worked without pay at least 15 hours in a family business or farm" and the reader wouldn't know. Until the BLS provides the household's constituent make-up, it's a useless number.
Consumer spending growth correlates most strongly with personal income growth, which has been remarkably strong.
First, notice how he does not cite sources - again. (It's the NRO; Sources are optional). Darda is relying on the Federal Reserve's Flow of Funds report. He is referring to a macro number made-up of every single US person's income for a particular period. This number includes the salary of the guy who makes your Starbuck's in the morning and the President of GM. So, at the national macro-level, everything is fine and dandy.
Well - not really. Most people don't make mega-bucks, Mike. Since January 2001, total hourly earnings of production workers increased from $14.27 to $16.27, or an increase of 14%. Over the same time, the inflation gage increased from 175.1 to 198.8 or an increase of 13.5%. This makes the real income increase .5% over 5 years. And this assumes CPI is a valid measure of inflation. (Considering home price appreciation is not included in CPI and health insurance represents .366% of the measure, CPI is a questionable measure of the inflation people really experience). You see, Mike, there are more Indians than chiefs in this economy. And most Indians aren't seeing meaningful wage gains.
While some of the more bumptious bears on Wall Street like to point out that low-end "cash wages" are not growing fast enough to support spending, I would note that the statistical linkage between income and spending drops by 12 percentage points, and the "error term" rises by 31 percent, when one substitutes non-supervisory production worker wages for the broader measure of personal income. Going through the same exercise with real variables instead of nominal ones only widens this divergence. In other words, broader measures of income are more closely associated with spending than more narrow measures; the use of low-end cash wages may be more useful when the point is political instead of economic.
Wow - Mike called us bears bumptious. I'm "crudely forward and assertive in behavior." I guess that's an insult? Anyway...Darda argues the national gross number for personal income is a better predictor of consumer spending. This may be the case. But, completely absent from this analysis is "what are people spending with?" Are they spending from increased earnings and wages or are they taking on more debt to subsidize their lifestyle? (Notice how the method of payment for consumer goods makes no difference; all that matters is people spend.)
Remember the lack of wage growth from above? 70-80% of the country isn't making any more money after inflation than they were 5 years ago. Instead of spending from increased earnings, people are adding mountains of debt to their personal balance sheet. In 2001, total consumer debt was 7.6 trillion; it currently stands at 10.2 trillion. People are adding tons of debt to their personal balance sheet to grow the economy.
The argument that there is no intrinsic savings in the U.S. also is a myth. Narrow measures of savings, such as the difference between personal income and personal spending, leave out many relevant household resources that could be tapped in times of need. Household net worth (total household assets less total household liabilities) has risen to a record $50 trillion. The ratio of financial assets (which excludes housing but not savings accounts or equities) is 3.6 times the level of personal income, slightly higher than the post WWI average of 3.2 times. What's more, gross private savings, which includes both the household and corporate sectors, was 13.7 percent of GDP as of the second quarter (the last period for which data is available). While this is below historical norms, it is above the 13.6 percent average rate during the year 2000 when the U.S. enjoyed a fiscal surplus of 2.5 percent of GDP.
I love this argument. It's obfuscation is brilliant.
Household net worth (total household assets less total household liabilities) has risen to a record $50 trillion. Darda is correct in this statement. What he fails to comment on is this number's constituent parts. 2003 was a good year for personal net worth because the increase came from a good mix of equities and real estate. However, real estate was responsible for 44% of the growth in 2004. And owner's equity is near 30 year lows.
The argument that there is no intrinsic savings in the U.S. also is a myth. Really? OK Mike. I believe you....not. First, notice how Darda places corporate and personal savings together? I wonder why he did this. Let's see...in 2004 individuals saved 151.8 billion and corporations saved 397.3 billion - over 2.5 times the amount of individuals. Let's put a good number and a bad number together to make a good number. Hopefully Rush will use this in his show tomorrow.
But it gets better. The Flow of Funds report also gives us totals for net annual contribution to individual IRAs, 401(k)s and defined contribution plans. For the years 2001-2004, net contributions to defined benefit plans were (in billions): -91, -55, -16, -21, respectively. For the same years, net contributions to defined payment plans (including 401(k) plans) were (in billions) 16, 17, 24, 18 and net contributions to IRAs (in billions) were 183, 195, 211, 245. So, the net totals of retirement contributions for 2001 were 108 billion, 157 billion, 219 billion, and 242 billion. This figures are between 1% and 2.2% of total US GDP.
But this is not the end. Darda fails to note the acquisition of liabilities in relation to assets. In each year from 2001-2004, the net acquisition of financial assets was negative (in billions, -114, -302, -84 and -371), indicating the nation put on more liabilities than assets in each year.
Mike conveniently forgot to mention the Federal government (controlled by your "fiscally conservative" party, Mike) borrows and spends like those damn "tax and spend" liberal Democrats (that's my party, Mike - the party that balanced it's last three budgets). Mike also forgot the US balance of payments deficit was 5.5% of GDP last year and will probably be over 6% this year - levels where currencies are extremely vulnerable to bearish corrections.
The bottom line on the savings front is corporations as a whole are the only sector of the economy saving money. Most consumers - who are in the "non-supervisory" wage class - have seen their dollar earnings stagnate after inflation for the last 5 years (why don't those corporate savings trickle down, Mike?). They have maintained their life-style by adding more liabilities than equity to their personal balance sheets.
Here's the basic reality of the economy right now. Flood the economy with cheap dollars to inflate an asset class, develop ways to extract value from that asset class so people can spend money now, and pray other sectors of the economy develop enough momentum to diversify the economy before the inflated asset class loses upward price momentum. At the same time, Bush cut taxes on the rich, decreasing government revenue. Then he spent just like LBJ by going to a voluntary war and increasing domestic spending. Government debt makes-up the difference between lower revenues and higher spending. At an intuitive level the right-wing economists know this. They know that my children - and their children and their children - will by paying for this administration long after it's out of power. As a result, they are attempting to justify the burden they have created so they can maintain their lifestyle now. The complete lack of knowledge of the overall macro-effects of their behavior on other people is a sign of total self-absorption. These are the kids in the sandbox who don't want other kids to play with their toys. So long as they get theirs for as long as they want, they are happy.
The RWNM usually lacks detail in their analysis because they know the constituent parts of this economy are a mess. Look below the surface in every nook and cranny of this "economic miracle" and you find massive amounts of debt financing just waiting to crush people who have no savings to fall back on. No one owns anything outright right now. The bank and the mortgage companies do.
Mike - you guys have screwed my children. They will pay for your debt. Sorry if I sound unthankful for your magnanimous gift.
PS: Have a nice day.