Poverty Fueled by Population Growth in the U.S.

December 21, 2012

http://www.reuters.com/subjects/income-inequality/indiana

The above-linked story was the feature article on Reuters yesterday.  It caught my eye because, though I now live in Michigan, Indiana was my home state.  The article uses the state of Indiana as a case study in the growth of poverty in the U.S.  It seems that Indiana has the second fastest-growing poverty rate in the country, second only to Nevada.  I suppose that the writers chose Indiana over Nevada for their case study since it better represents middle-class America, as opposed to a state whose economy is built around gambling and entertainment. 

It’s a very long, thorough treatise of the problem of poverty in America, but it’s this one sentence in particular that reall caught my eye:

The number of Americans below the federal poverty level – $22,350 a year for a family of four – hit 48 million in 2011, 17 million more than in 1989.

With this data, we can do a little math.  In 1989, the U.S. population was 247 million people.  At that time, the number of people living in poverty was 31 million (48 million minus 17 million).  That’s a poverty rate of 12.5%.  In 2011, the U.S. population was 310 million, and 48 million lived in poverty.  That’s a rate of 15.5%.

But consider this:  between 2011 and 1989, the U.S. population grew by by 63 million people, and 17 million have been added to the ranks of the poor.  That means that 27% of the people added to our population since 1989 are below the poverty level! 

The theory I presented in Five Short Blasts predicts that a growing population (once some critical level has been breached) will result in rising unemployment and poverty.  This piece of data corroborates that theory, and even I was surprised at just how rapidly it’s fueling the poverty rate. 

And, as the article points out, all of this is in spite of the fact that the federal government spent a record amount in 2011 to combat poverty.  Given the impetus to cut federal spending, what is the likelihood that this effort to hold back the tide of poverty can be sustained?  Only slightly better than the likelihood that it will address the real root cause of the problem.


The National Debt: How Big and Who Pays?

December 17, 2012

In light of the intense debate over the “fiscal cliff” – triggered by unsustainable federal budget deficits that are growing the national debt at an alarming rate – this might be a good time to revisit the national debt and put that problem in perspective.  Just how bad is it?  Who’s on the hook to pay it?  What’s the best way to fix it? 

Most economists relate the national debt to our gross domestic product, or GDP – in other words, the size of the economy.  So let’s begin there.  The following shows the growth in our national debt vs. growth in GDP:  National Debt vs. GDP, 1929-2012.  (Source:  U.S. Bureau of Economic Analysis.)  Note that the two have grown in tandem but, beginning in the early 1980’s, the national debt began to catch up to GDP and the lines crossed in 2010. 

To make it easier to understand, let’s look at the national debt as a percentage of GDP:  National Debt as Percentage of Chained GDP.  (Source:  U.S. Bureau of Economic Analysis)  The war effort (World War II) skyrocketed the national debt to 120% of GDP but, once the war ended and federal spending returned to normal levels, growth in the economy steadily outpaced growth in the national debt until the national debt fell to only about 33% of the economy in 1981.  Aside from a brief period in the late ’90s, when a bubble in the stock market and in the PC/cell phone/internet businesses generated a ton of federal revenue, resulting in balanced budgets, the national debt has grown steadily as a percentage of GDP, but really began to accelerate in 2008 when the “Great Recession” took hold.  Now the national debt exceeds our GDP, a milestone where some economists begin to fret.  How much debt is too much?  I don’t think anyone really knows.  As a percentage of GDP, some nations’ debts are actually much larger than that of the United States.  Interest payments on the debt are still a relatively small part of the federal budget, though growing. 

But who’s really on the hook for this debt?  If holders of America’s bonds decided to cash them in and demand repayment of their principal, where would the money come from?  The federal government would have to extract revenue from “the economy” in order to come up with the cash.  But that’s misleading.  Almost all federal revenue comes from the pockets of individual taxpayers.  Any revenue generated by taxing business simply gets rolled into the cost of their products and we still end up paying.  So, what’s more significant than the percentage of GDP that the national debt represents is your share of it.  How much do you owe?  Would you be able to pay it?  Here’s a chart of the national debt per capita, and how it’s grown from 1929 to today:  National Debt Per Capita, 1929-2012.  (Sources:  U.S. Bureau of Economic Analysis and U.S. Census Bureau)

Yikes!  Now that’s scary!  On average, every man, woman and child owes about $44,000 on the national debt – a new record in 2012, and climbing really fast.  That’s more than double what it was at the end of World War II.  If you’re the breadwinner for a family of four, your family owes $176,000.  Could you afford to pay that?  Few could.  Virtually no one could by having a percentage deducted from their pay in the form of taxes.  It’d have to come from your net worth – your home and your savings. 

So let’s take a look at household net worth to see just how many people could afford this.  This chart shows both the median (the point at which half of the people have higher net worth, and half have lower net worth) and the mean (average) net worth of households:  Household Net Worth.  (Source:  U.S. Federal Reserve)  First of all, as an aside, notice that the median net worth hasn’t grown at all since 1983, the year the Federal Reserve first began tracking this data on a triennial basis.  But the mean has grown nicely.  This means that the net worth of the top few percent of households has grown at a phenomenal rate.  In 2010, the median household net worth was about $77,000.  But, on average, each household owes $176,000 on the national debt.  In other words, if your net worth is anywhere near the median or less, you’re broke!  You just don’t know it yet. 

In actuality, though, the national debt wouldn’t be spread evenly across all households.  The rich would have to shoulder much more of the burden, since their net worth is much higher.  So how much would each household owe if the percentage of net worth was the same for everyone?  To calculate this, we divide the national debt by the sum total net worth of all households combined.  Here’s the chart:  National Debt as Percentage of Total Household Net Worth.  (Sources:  U.S. Bureau of Economic Analysis and U.S. Federal Reserve)

As you can see, this figure held fairly steady for decades in the 12-20% range.  But, in 2010 (following a brief period during which if fell, thanks to the bubble in housing market), it jumped to 28%, thanks to a big jump in the national debt and a fairly big drop in household net worth in the wake of the “Great Recession” a few years ago.  The point is that, if we’re all to pay an equal amount in terms of percentage, we’ll all be called upon to fork over 28% of our net worth. 

What are the odds that all of America’s creditors will want to cash out at the same time?  Slim to none.  Why would they?  They’d be paid in dollars.  Then what?  What do they do with those dollars which, ultimately, can only be redeemed in the U.S.?  Nevertheless, as the debt goes higher, so too does the risk that more and more creditors will become uncomfortable and will want their money back.  One way or the other, the debt has to begin coming down at some point, whether it’s done by the government through tax increases and spending cuts, or by creditors cashing out.

In essence, you owe 28% of your net worth to the federal deficit spending that has taken place over the decades, propping up the economy and making us all feel wealthier than we really are.  And, bear in mind that the median household net worth hasn’t risen since 1983.  Were it not for that deficit spending, most of us would actually be 28% poorer.  The unraveling of the national debt process is going to be painful.  Even if it occurs over many years, it will be a matter of the federal government withdrawing stimulus from the economy.  It’ll leave all of us poorer than we would be if the deficit spending continued – something that can no longer be sustained.

Of course, there is a way that the national debt could be cut painlessly – a way that no politician or economist has dared to address – a way that addresses what necessitated the deficit spending in the first place – and that’s fixing our trade policy to restore a balance of trade.  As I’ve discussed many times in the past, it’s no mere coincidence that the growth in our national debt closely tracks the growth in our cumulative trade deficit.  You’ll notice that, in all of these charts, things took a turn for the worse in the early 1980s.  That coincides closely with the beginning of our string of 37 consecutive annual trade deficits that began in 1976, sapping nearly $12 trillion from our economy.  Here’s that chart once again:  Cumulative Trade Deficit vs Growth in National Debt.  (Source:  U.S. Bureau of Economic Analysis)

Without tackling the trade deficit, any meaningful progress toward reducing the national debt is impossible without throwing the nation into recession.  Both parties know it.  Neither wants to address it.  Republicans love our trade policy because it’s in the best interest of their rich, corporate benefactors.  Democrats love it too – perhaps not to the same degree – because it makes people more dependent on government largesse.  But now both parties are stuck.  The most likely action is some token, trivial revenue increases and spending cuts in return for mutual agreement to address the problem in a more meaningful way, perhaps after the next election.  And the next time the debt is tackled again?  The result will be the same.


Apartments Shrinking in Major U.S. Cities

December 13, 2012

 As I browsed through the latest issue of AARP Bulletin last night, the following article caught my eye.

Tiny Apartments

 It’s very rare that I come across something like this – hard data on per capita consumption that can be linked to population density.  As reported in the article,  apartments are shrinking in major U.S. cities. 

Compare the size of these apartments to the average-sized home in the U.S.  The average per capita dwelling space in the U.S. is 710 square feet.  That means that the average single person occupies a dwelling (likely an apartment) of 710 square feet.  The average family of four occupies a dwelling (likely a single family home) of 2,840 square feet.  As reported in this article, apartments in large, densely populated major cities of the U.S. are shrinking down to 220-330 square feet. 

The fact that people in large cities tend to live in apartments isn’t news.  Nor is the fact that single young people, just starting out in their careers, choose to live in small apartments.  I did when I was discharged from the Navy and began my career in the Cleveland area.  (My apartment dwarfed those being reported in the above article.)  Even though I was living in the ‘burbs among many nice homes, I chose to live in an apartment because that’s all I could afford at the time and because I had no interest in a bigger home. 

But as I pointed out in Five Short Blasts, population density is a major factor in forcing people into smaller dwelling spaces than they’d otherwise choose.  (See Figure 5-2 on page 88.)  The average japanese citizen occupies a dwelling space less than one third that of the average American’s home, not because they like living in crowded, cramped quarters but, because Japan is ten times as densely populated as the U.S., there isn’t room for anything larger. 

This article is further corroboration of the effect, reporting that small apartments are now getting even smaller as these cities grow more densely populated and as the demand for housing becomes more intense.  Let’s focus on the data reported for San Francisco, where that city is considering reducing the legal minimum apartment size from 290 square feet to 220 square feet.  Consider the impact on per capita consumption.  The per capita consumption of flooring materials is reduced by 24%.  So too is the per capita consumption of materials used in the ceiling.  The per capita consumption of materials used to build the walls – lumber, drywall, nails, tape and joint compount, and paint – is reduced by 13%.  The per capita consumption of wall-hangings is reduced by that amount as well.  And thanks to the 24% reduction in foor space, the consumption of furnishings is reduced even more, since occupants still need the same amount of aisle space between the furnishings. 

The problem is that the denizens of these tiny digs are just as productive as any other workers and just as hungry to earn the income needed to pay for these over-priced dwellings.  Just as productive, but consuming far less.  It’s a trend we find in nearly every aspect of the economy as our world grows more densely populated.  You do the math.  It’s impossible to consume less in per capita terms without having an equal impact on per capita employment.  Worsening unemployment is absolutely inescapable. 

Of course, economists don’t think in these terms.  They see urban population densification as synonymous with a densification of economic activity – more money spent per square mile.  They dismiss  the decline in per capita consumption of dwelling space and other goods with the claim that people will simply spend their money on other things – like services and entertainment, and create jobs in those sectors.  Never mind the fact that the high cost of these apartments leaves people without any additional income or the fact that people in less densely populated conditions enjoy those same services and entertainment in greater measure because they actually do have the money.

That this obvious inverse relationship between population density and per capita consumption continues to elude the field of economics is astounding and tragic.


Exports Plunge in October, Lag Obama’s Goal by Record Amount

December 12, 2012

http://www.bea.gov/newsreleases/international/trade/2012/pdf/trad1012.pdf

Exports plunged in October, led by a sharp drop in manufactured goods.  (See above link to the October trade report.)  Overall exports (including all goods and services) fell to their lowest level in eight months and now lag the president’s goal of doubling exports in five years by $29.8 billion – a new record.  Overall exports have barely risen at all – only $2.1 billion – since July, 2011.  To keep pace with the president’s goal, exports needed to have risen by $33.4 billion during that time frame.  Here’s a chart showing overall imports and exports vs. the president’s goal:  Obamas Goal to Double Exports.

Manufactured exports fell by $4.4 billion, the largest decline since January, 2010 when President Obama set a goal of doubling exports within five years.  Manufactured exports have now lagged the president’s goal for 13 straight months and by the largest amount yet in October – a $20.3 billion shortfall.  Manufactured exports have actually declined by $0.8 billion since July 2011.  They needed to rise by $20 billion to keep pace with the president’s goal.  Here’s the chart for manufactured goods:  Manf’d exports vs. goal

On both above charts, you’ll notice that both imports and exports have leveled off and begun to decline over the past few months.  That’s a strong indication of a global recession taking hold. 

It’s no surprise at all that the president is failing miserably on his goal of doubling exports.  Neither the president nor anyone else has any control whatsoever over exports, which are determined solely by foreign demand for our products and the state of foreign economies.  If the president wants to rebalance American trade in his quest to stave off another financial crisis, he needs to turn his attention to imports, over which he has total control, if only he were to address our laissez faire trade policy and return to the sensible use of tariffs to assure a balance of trade. 

The president’s goal of doubling exports is a cornerstone of his economic policy.  Aside from me, is anyone tracking his progress?  The media seems to be AWOL on this issue.  Unless some “think tank” publishes a study on this subject – not likely given that that would require some actual thought and effort (not to mention that that’s not what the “think tanks” are paid to do by their benefactors) – no one will ever notice.  Maybe that’s what the president was counting on when he set the goal.


U.S. Birth Rate Falls to Record Low

December 8, 2012

http://www.usatoday.com/story/news/nation/2012/11/29/birth-rate-declines-record-low-immigrants/1735797/

This story (link provided above) came out while I was traveling last week, so I’m just now getting around to it.  It’s far too important to let pass without comment.  As reported by the Pew Research Center, the birth rate among women of child-bearing years (ages 15-44) fell to 63.2 births per 1,000 women, half the rate of 1957 and the lowest since record-keeping began in 1920.  This is great news for the economy (as I explained in Five Short Blasts and as further explained on this web site), and it’s great news for anyone concerned about the other challenges that overpopulation presents – global warming, resource depletion and environmental degradation.  Of course, this good news can (and likely will) be undone by misguided legislators, following the advice of their economists, by compensating with increased immigration and legislation that encourages a higher birth rate. 

I won’t rehash in this post how a lower birth rate is good news for the economy.  But the story and some reaction to the story do merit comment.  First of all, the final sentence in the above-linked story summarizes well economists’ reaction to such news: 

The Post (The Washington Post) writes that “… A continuing decline would challenge long-held assumptions that births to immigrants will help maintain the U.S. population and provide the taxpaying workforce needed to support the aging Baby Boomer generation.”

Economists believe that each succeeding generation needs to be bigger than the one that preceded it in order to support the older generation in retirement without placing too much burden on the younger generation.  Never mind the fact that economists don’t understand what an overcrowded population does to harm the economy.  The folly of such an approach is obvious to any thinking person who understands that it’s impossible for the population to grow indefinitely and, when it does stop, we’ll be left with the same problem, but on a much larger scale. 

Secondly, the report notes that the decline in the birth rate is led by a sudden plunge among immigrant women – especially among Mexican women – with the onset of the recession a few years ago.  This proves that economics is a major factor for families in deciding how many children to have.  And it proves that the approach I advocated in Five Short Blasts for reducing the birth rate to a level consistent with a stable population – using tax policy to encourage a slightly lower birth rate – would likely work very well.  There’s no need to resort to the clumsy, authoritarian tactics employed in places like China and India.  Just make it a little more expensive to have large families and leave people free to decide for themselves how many children is the right number for them. 

Then there’s this reaction from Reuters columnist Chrystia Freeland.  It begins with the observation of some of the more ridiculous misconceptions about birth rates:

“… for a long time, the United States has watched declining birthrates in places like Western Europe, Russia and even China with an air of superiority. The United States, lusty and fertile, was bucking the demographic trends.”

How exactly is a high birth rate any indication of “superiority?”  Do unborn fetuses decide to migrate to the wombs of mothers in the U.S. because it will be a better place to live?  Not likely.  Equating a high birth rate with any sort of “superiority” flies in the face of the facts.  A high birth rate characterizes the worst hell-holes in the world.  The nations with the top five birth rates are Niger, Mali, Uganda, Burkina Faso and Zambia – among the poorest nations on earth. 

Nevertheless, this is a common attitude.  Every city points with pride to its population growth as some sort of evidence of its superiority to other cities – as evidence that it’s a better place to live.  No one ever notes that nearly every city is growing in population at the same rate and that, if they keep it up, none of them will be a good place to live.

Later in the article, Ms. Freeland notes another prominent attitude toward birth rates:

Kotkin (Joel Kotkin, author of a study of birth rates for the Civil Service College of Singapore), for example, sees the falling birthrate as the central feature of what he calls “post-familialism,” a new form of social organization that prizes liberation, personal happiness and perhaps even a “hip” urban aesthetic over the more traditional values of community and self-sacrifice.

So, somehow, a lower birth rate is associated with selfishness and a turn away from traditional values?  How did overpopulation ever become a “family value?”  Is it not possible for small, one and two-child families to embrace “traditional values” in the same way that they are embraced by larger families? 

Ms. Freeland concludes her piece by arguing in favor of women using their wombs and a lower birth rate as leverage women can use in their quest to become “full members of society.”  (I’m now banging my head on the desk.)


Per Capita Employment Falls, Unemployment Rises

December 7, 2012

http://www.bls.gov/news.release/empsit.nr0.htm

The headlines of the national employment report for the month of November, released this morning by the Bureau of Labor Statistics (BLS), seems to carry good news.  The economy added 146,000 new jobs (according to the establishment survey, a figure just high enough to keep pace with growth in the labor force) and unemployment dropped another tenth to 7.7%. 

But forget that nonsense.  A closer reading of the report (link provided above) paints a very different picture.  The household survey employment level actually fell by 122,000 jobs.   The BLS had to rely once again on the “mysteriously vanishing labor force” trick to make unemployment appear to have declined.  It claimed that nother 350,000 workers vanished.  If, instead, one assumes that the labor force grows as the population grows, then unemployment actually rose by a tenth in November to 10.4% – the level it would be if you used this assumption each month for the past five years. 

And if you believe that the BLS hasn’t been understating unemployment, then how do you explain the fact that, since unemployment hit its worst level of the recession in October 2009 – 10.0% – unemployment has supposedly declined by 2.3% while per capita employment (the employment level divided by the population) has only risen by 0.56%?  

In fact, if you dig deeper into the report, you’ll find an even gloomier picture  – one of an economy that’s gone nowhere in the past 12 months, as made clear by the following excerpts:

“The change in total nonfarm payroll employment for September was revised from +148,000 to +132,000, and the change for October was revised from +171,000 to +138,000.”

Regarding that one, isn’t it interesting how the figures for the past two months – figures that prevented the jobs report from being a big issue in the waning days of the election – are now revised downward?  Here’s more:

“The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 4.8 million in November.”

“The civilian labor force participation rate declined by 0.2 percentage point to 63.6 percent in November, offsetting an increase of the same amount in October.”

This is corroborated by my own calculation of a decline in per capita employment.  And more:

“The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), at 8.2 million in November, was little changed over the month.”

“In November, 2.5 million persons were marginally attached to the labor force, essentially unchanged from a year earlier.”

“Among the marginally attached, there were 979,000 discouraged workers in November, little changed from a year earlier.”

“Employment in construction declined by 20,000 in November, …. Since early 2010, employment in construction has shown no clear trend.”

“Manufacturing employment changed little over the month. Within the industry, job losses in food manufacturing (-12,000) and chemicals (-9,000) more than offset gains in motor vehicles and parts (+10,000) and wood products (+3,000). On net, manufacturing employment has changed little since this past spring.”

So where were the job gains?  Primarily in retail trade, professional and business services, and healthcare.  That’s good, but not a healthy sign when all of the growth is concentrated in just two narrow facets of the economy. 

Economics is all about meeting the wants and needs of people.  A healthy economy (especially one of our size) must be built around the whole process – including research and development, harvesting resources, manufacturing product, distribution, marketing, retail and countless other ancillary services.  But that’s not what we’re seeing.  All of our job growth is concentrated in the latter categories of distribution, marketing and retail.  Why?  Because the backbone of the economy – manufacturing – has been gutted by flawed trade policy.  And as manufacturing goes, so too goes R&D, production of resources and even construction. 

Economists celebrate the process of “creative destruction,” where old products are replaced by new and improved and more efficient ones.  Since “creative destruction” most heavily impacts manufacturing and requires construction of new manufacturing facilities, it’s only logical that the construction sector of the economy is similarly affected if there are, thanks to our trade policy, far fewer manufacturing facilities that need refurbishing, overhaul or even replacement with newly constructed factories. 

This employment report is just more verification that our economy has settled into the “new normal” of high unemployment and falling incomes.  But this “new normal” is also one that has been propped up with extreme levels of monetary easing by the Federal Reserve and by deficit spending by the federal government.  It’s what has enabled people to keep buying products to meet their needs, keping the retail, marketing and business sectors of the economy growing.   It could soon get worse if and when all that stimulus dries up. 

Regardless, the re-election of President Obama has assured that this will be the status quo for the next four years.  He will continue the high rates of immigration that steadily worsen the imbalance in the supply and demand for labor, and he will do nothing to address the idiotic trade policy that has been bandrupting America for decades.  (He promised to tackly trade policy during the campaign in 2008.  He hasn’t.)  All we have to look forward to is another four years of a bench-warmer, place-holder president.


The High Cost of Misguided Trade Policy

December 4, 2012

http://money.cnn.com/2012/11/29/news/economy/unemployment-benefits-cost/index.html?hpt=hp_t2

Just catching up on some things following a trip last week.  You’ve heard me say repeatedly that our deficit spending is a direct result of our trade deficit – that it’s essential to return to the economy those dollars that were drained away by imports, offsetting the negative consequences.  Unemployment benefits are a perfect example and the above-linked article details just how massive that program is:  over a half trillion dollars in the past five years. 

Legislators are desperately seeking ways to cut spending to avoid the “fiscal cliff.”  If they want to cut spending, they’re looking in the wrong place.  All they need to do is fix our idiotic trade policy, now responsible for a cumulative trade deficit of nearly $12 trillion since our last trade surplus in 1975, and the spending will take care of itself.  Spending on unemployment benefits would melt away, as would spending on a myriad of other safety net programs designed to maintain an illusion of prosperity.