Per Capita GDP Contracts in 1st Quarter

April 29, 2016

Recessions are determined by two consecutive quarters of contraction in the nation’s Gross Domestic Product, or “GDP.”  But what if the GDP grows, but more slowly than the growth in the population?  In that case, your share of the economy has shrunk, as it has for every American, and it’ll feel like a real recession to you.  So that’s how recessions should really be defined – in terms of per capita GDP.

By that measure, the next recession may very well already be underway.  Though GDP grew in the first quarter, though by a paltry 0.5% (as announced yesterday by the Bureau of Economic Analysis), per capita GDP actually contracted by 0.2%, thanks to the population growing at an annual rate of 0.8% in the same time period.

This is the 2nd time in four quarters that per capita GDP declined.  It happened in the same 1st quarter time period last year, falling by 0.2%.  The difference is that last year the economy was already beginning to rebound by the end of the first quarter as we emerged from an extremely harsh winter.  This year, the economy stalled in spite of relatively mild weather and, with the first month of the 2nd quarter already behind us, the economic slowdown appears to be intensifying.

This stagnating of the economy isn’t just a one or two-year phenomenon.  It’s been developing for a long time now.  During the 8-year period beginning with the 1st quarter of 2008 (just before the onset of the “Great Recession”), per capita GDP grew at an annual rate of only 0.5%.  (Check this chart:  Real Per Capita GDP.)  During the 8-year period prior to that (2000-2008), it grew at an annual rate of 1.4%.  And during the 8-year period prior to that (1992-2000), it grew at an annual rate of 3%.  Though the economy continues to grow, albeit ever more slowly, in terms of GDP, per capita GDP has essentially ground to a halt.

This is exactly what the inverse relationship between population density and per capita consumption would predict – that eventually over-crowding would erode per capita consumption to a point where per capita GDP would actually begin to contract.  That’s exactly what we see happening now.  Though we continue to lean as heavily as ever on population growth to stoke the economy, that strategy has begun to backfire. We are all becoming worse off as a result.  It’s time for economists to wake up to the fact that this blatantly-flawed economic strategy is doomed to failure – that population growth has become a drag on the economy.

Advertisements

U.S. Trade: A Tale of Two Worlds

January 21, 2016

Divide the world in half by population density and the results couldn’t be more different.  In 2014, it grew worse again.  The half of nations with a population density above the world’s median – 184 people per square mile – left the U.S. with a trade deficit in manufactured goods of $669 billion in 2014.  That’s up by $35 billion from the record set in 2013.  It has worsened every year since 2009.

The other half of nations – those with a population density less than the median – yielded starkly different results.  The U.S. enjoyed a trade surplus in manufactured goods of $132 billion with those nations.  That’s down from $147 billion in 2013 and down from the record of $153 billion set in 2011.

Here’s the chart:  Deficits Above and Below Median Pop Density.  If this isn’t proof of the relationship between population density and trade imbalances, I don’t know what is.  The number of nations is the same, but the less densely populated nations give us a $132 billion surplus, while the more densely populated nations leave us with a $669 billion deficit.  Still the U.S. applies the same free trade policy to all nations without any consideration to population density.  Doesn’t make much sense, does it?

One may counter that the results are skewed by the fact that the more densely populated half of nations includes more people than the other half, and that it includes China, which accounts for more than half of the above deficit.  Fine, so let’s analyze the data in some other ways:

  • Dividing the world in half by population is a little awkward, because China falls right in the middle.  It requires including some of China’s people in the more densely populated half, and some in the less densely populated half, and dividing our deficit with China proportionately.  If we do that, we find that the U.S. has a trade deficit in manufactured goods of $464 billion with the half of people living in more densely populated conditions.  By contrast, we have a trade deficit of $72.8 billion with the half of people living in less densely populated conditions.  The trade deficit with the more densely populated half of people is more than six times worse than our deficit with the half of people in less crowded conditions.
  • Let’s look at it another way.  Let’s divide the world’s land mass (not including Antarctica) exactly in half and compare the more densely populated half to the less densely populated half.  Then we have a trade deficit in manufactured goods of $666.8 billion with the people living in the more crowded half of the world, and a trade surplus of $130 billion with the less crowded half of the world.
  • Instead of dividing the world in half, let’s divide it around the U.S. population density – those nations more densely populated vs. those less densely populated.  Of the 165 nations studied, 112 are more densely populated than the U.S. and 53 nations are less densely populated.  The U.S. has a trade deficit in manufactured goods of $701.2 billion with nations that are more densely populated, and a surplus of $164.5 billion with those that are less densely populated.  That’s a difference of $865.7 billion.
  • The U.S. has a trade deficit in manufactured goods with 56 nations.  Of these 56 nations, only four are less densely populated than the U.S.:  Sweden, Finland, Estonia and Laos.

Any way that you look at it, the relationship between population density and trade imbalance just absolutely screams out at you.  But economists don’t see it.  They don’t see it because they won’t look.  They won’t look because of their adamant refusal to give any credence to the notion that population growth has any economic consequences.

Trade deficits, they say, are the result of other factors:  low wages, currency manipulation, lax environmental and labor standards, etc.  Or they say that trade imbalances are merely transitory, that such imbalances will correct themselves as the economies of underdeveloped nations grow.

Proving that trade imbalances are caused by disparities in population density also requires disproving the above pet theories of economists.  We’ll tackle that in my next posts.


Global Economic Growth Slowing. What a Surprise.

August 26, 2015

Though it seems that nearly everyone lately is alarmed by a global economic slowdown – especially in China, no reader of Five Short Blasts or this blog should be surprised.  You may recall that, late last year when I published my annual predictions for 2015, I warned of a faltering economy and, specifically, a slow-down in growth in China from 7.5% to less than 6%.  Last week, China’s growth rate fell to 6.7%, a story that sent global stock markets into a tail-spin.  At the time of my predictions, coming off of a strong 3rd quarter in 2014, virtually everyone was bullish on the prospects for accelerating growth.  Now, everyone is wondering, “What the hell happened?”

What happened is delusional economic growth theory running smack into the  economic reality of the inverse relationship between population density and per capita consumption.  On the news this morning I heard that only three countries account for 80% of the world’s economic growth – China, India and the U.S.  Since growth in the U.S. is practically negligible, that leaves China and India – the two most populous nations on earth.  Let’s focus on China.

To be sure, economic growth in China for the past two decades has been phenomenal.  Twenty years ago, China was among the poorer nations on earth.  It was a nation with a population four times that of the United States, but one that consumed virtually nothing.  Corporations drooled over the seemingly limitless growth potential.  Just imagine turning every Chinese citizen into a western-style consumer!  So they rushed in to build factories and infrastructure to make it happen – more development in two decades than the U.S. saw in two centuries.

Now their economy has gone as far as it can go on exports.  China’s continued growth now depends on domestic consumption, and it just isn’t there.  China’s consumers consume more products than ever before – far more – but nowhere near the level that was projected.  What economists have been unable to see is that China’s severe over-crowding caps its economic potential at a much lower level than they thought – at a level that it is very close to reaching, if it’s not already there.  In fact, it may have already over-shot its economic potential, with the export-driven economic momentum propelling it beyond that point.

This is actually good news.  Anything that exposes economic growth theory as the fraudulent pyramid scheme that it is hastens the day when economic stability and sustainability reign, a day when corporate lust for population-driven sales growth takes a back seat to the common good and an optimum quality of life.  But there’s a hell of a long way to go.

 


The End of Growth

October 22, 2014

http://www.reuters.com/article/2014/10/16/us-cenbanks-markets-policy-idUSKCN0I501120141016

Last week, markets were in a steep sell-off, driven largely by increasing worries about global economic growth.  (See the above-linked Reuters article from last week.)  In the wake of the Great Recession, years of interest rates at zero and money printing by the central banks of the U.S., Europe and Japan have yielded pretty disappointing results.  Europe is once again on the brink of recession.  And Japan has either been in recession or been on the brink for decades.  And slowing economic data in the U.S. is making it look as though we won’t avoid backsliding into recession either.

We’ve all seen cartoons depicting pessimists standing on street corners wearing sandwich-board signs declaring that “the end is near.”  Well, folks, it’s time to face facts.  When it comes to economic growth, the end is, in fact, here.

Let’s begin with a step back – way back – to World War II.  The imperialist ambitions of both Germany and Japan had similar roots.  Both nations were badly overpopulated, short on resources and long on unemployment.  Both embarked on huge land grabs.  In the wake of the war, in 1947, the Global Agreement on Tariffs and Trade – the precursor of today’s World Trade Organization – was implemented, with the primary goal of preventing such wars by giving Germany and Japan easier access to resources and more access to U.S. markets, thus alleviating the high unemployment that fostered Hitler’s rise to power.

No problem, at first.  Americans had done without for years, with the nation’s manufacturing capacity devoted 100% to the war effort.  There was a lot of catching up to do and Americans’ appetite for goods seemed insatiable.  The economy boomed and the federal government was able to cut spending and whittle away the debt it had racked up during the war.

The infrastructure and economies of Germany and Japan were rebuilt.  Slowly, the new trade regime enabled imports from those nations to erode America’s trade surplus.  First came Volkswagens and a sprinkling of Mercedes and BMW’s from Germany.  Those were followed first by motorcycles from Japan, and then Hondas – pathetic little cars that were painted in paisley and sold as jokes, but they got their foot in the door.  By the early 70’s our trade surplus was gone.  We oscillated between surplus and deficit for a few years.  We ran our last trade surplus in 1975.  Since then, we’ve experienced 38 (soon to be 39) consecutive years of trade deficits.

At about the same time, America’s budget deficit began to grow again too.  It had to, to offset the trade deficit’s drain of money from the economy.  Soon, new terms began to creep into the American economic lexicon:  “redundancy,” “down-sizing,” “right-sizing” and “outsourcing.”  American manufacturers began closing their doors en masse, unable to sustain a profit margin in the face of the onslaught of foreign companies snatching up American market share.

Even with their new-found trade surpluses and manufacturing jobs cannibalized from American manufacturers, the Europeans and Japanese both found it necessary to lean heavily on deficit spending, just as America was doing, to keep a lid on unemployment.  Rising productivity enabled manufacturers to meet growing demand without growing employment at the same pace.

At the end of World War II, the world’s population stood at just under 2.5 billion.  Today it has nearly tripled.  All of this growth has been concentrated in urban areas.  Cities have expanded and grown vastly more crowded, and it’s a fact that people living in crowded conditions consume less out of necessity.  Growth in the global labor pool outpaced the rate at which workers were absorbed into the economy, putting downward pressure on wages.  And that situation grew exponentially worse when China was factored into the global trade equation, growing the global labor pool virtually overnight by 25%.

For a time, government deficit spending, used primarily to fund social safety net programs and other programs designed to supplement incomes and prop up a perception of wealth, sustained consumption and kept the economy growing.  But that tactic has run its course.  National debts have risen to worrisome levels.

Developed economies looked to China to pick up the slack by developing its economy, turning 1.3 billion people who had nothing into western-style consumers.  By that measure, China has been a huge disappointment.  Collectively, they consume a mountain of goods, but nowhere near enough to even consume their own productive capacity, much less to develop into a market for other nations.  Their growth is faltering and it looks like their domestic consumption will settle at the same diminished level as Europe and Japan.

Growth is now virtually dead and all the deficit spending in the world can’t prop it up.  Economists won’t admit that fact and adamantly refuse to give any consideration to the fact that population growth lies at the heart of the problem.  But markets don’t care, and what we’re witnessing is an adjustment to a no-growth world.  Interest rates have fallen to zero.  Bond yields, projected to rise as the economy “recovered” never did, and are now sliding backward to near-zero levels.  Central banks’ hands are tied, left only with thinly-disguised money printing programs to fall back on to provide stimulus to the economy, a tactic that’s already begun to make them nervous about unintended consequences.

The world’s economy is reaching a critical and dangerous point, where the inverse relationship between population density and per capita consumption begins to take hold in a big way that can trigger an irreversible downward spiral.  People consume less than they’d like for two reasons – because they lack space to make use of products, and because they are simply too poor to afford them.  When the proportion of people in the first condition reaches a critical level, the downward pressure on wages begins to make everyone poorer, accelerating the downward pressure on consumption.  Governments’ and central banks’ resources and abilities to hold this economic force at bay will soon be exhausted.

Economists had better extract their heads from that place where the sun doesn’t shine, and soon, if this economic fate that they don’t understand and are unable to see is to be avoided.  I fear that they won’t.  Growth isn’t always desirable.  Sometimes it’s cancerous.  Left unchecked, population growth will soon present the one challenge that none of them are clever enough to overcome – worsening poverty that gets so bad that it throws the world population into decline.  In essence, if economists and world leaders aren’t smart enough to manage our population to a level where all can enjoy a high quality of life, their stupidity will surely drive it to a level that no one wants.

 


“Scarcity” at Root of Political Polarization?

July 23, 2014

http://www.pbs.org/newshour/bb/politically-divided-wisconsin-little-incentive-seek-middle-ground/

The above link will take you to a story that aired on the PBS Newshour on July 18th.  It’s a story about the political divide in Wisconsin and is followed by analysis by David Brooks (conservative and Wall Street Journal columnist) and Mark Shields (liberal commentator).

Brooks’ analysis was particularly poignant.  He explained that he once believed our polarization was a top-down, Washington-based phenomenon, but now sees it as a bottom-up movement, driven by “scarcity.”

The significance of this is that “scarcity” is a term used by economists, primarily to deride those concerned with overpopulation as having a “scarcity mentality.”  It’s an alternative to “Malthusian,” lest the latter term become trite.  You see, economists don’t believe in the concept of “scarcity.”  Man is clever enough to stretch resources and always assure that there is enough for all as our population continues to grow, say economists.

So it’s significant that someone of Brooks’ gravitas sees actual scarcity in our economy that is the driving force behind our polarization.  It’s not a scarcity of natural resources but a scarcity of jobs, a scarcity of income, a dwindling of resources needed to provide adequate health care and of government resources necessary to provide a social safety net.  Such scarcity now pits Americans one against another as they compete for these ever-more-scarce financial resources.  Each side now sees the other as a threat instead of as fellow Americans working toward a common goal.  The haves see the have nots as a threat to strip them of some of their wealth through redistribution schemes.  The have nots see the wealth of the haves as ill-gotten gains that have been taken from them unfairly with the collusion of their conservative politicians.  With each side  perceiving themselves as having their backs against the wall, neither is willing to compromise.  We’ve become like an overcrowded cage full of  animals where all was peaceful until the zookeeper began cutting back on the food thrown into the cage.

This scarcity is the direct consequence of the rising unemployment and worsening poverty that’s inescapable as overcrowding drives down per capita consumption and, with it, employment.  And it’s not merely a national phenomenon, but a global one, as labor forces continue to swell and compete for ever-more-scarce manufacturing jobs just to keep themselves out of poverty.

If Brooks is right (as I believe he is) that scarcity lies at the root of our political polarization, then the polarization and gridlock in Washington is only going to get worse.


We are ruled by economists.

April 21, 2014

http://blogs.reuters.com/anatole-kaletsky/2014/04/19/time-to-stop-following-defunct-economic-policies/#comment-1696

I’ve been gone for two weeks and have a lot of catching-up to do, but thought I’d begin with something most recent.  You’ve heard me claim that there are no political solutions to our slow-motion economic demise because our political leaders simply hand over economic policy to some economist who, invariably, regardless of whether they subscribe to the philosophies of Keynes or Hayek, are pro-growth and lean heavily on population growth to achieve it.  Only by opening the eyes of economists can there be any hope for real change.

So I’m especially fond of any writings that take the field of economics to task.  The above-linked editorial appeared on Reuters a couple of days ago.  (And I especially love the opportunity to be the first to comment!)  In this piece, the author, Anatole Kaletsky, calls for “… new thinking about politics and not just economics.”  He begins with a quote from economist John Maynard Keynes:

The ideas of economists, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.

I couldn’t have said it any better.  The world is ruled not by politicial leaders but by economists.  It’s a scary thought when you realize that economics isn’t a real science at all, but something more akin to philosophy, mixed with a little psychology and some mathematical expressions of theories to lend it credibility – theories virtually devoid of facts and data to support them.  Real sciences are rooted in data, and real scientists go unafraid wherever the data takes them.  That’s why technology advances at breakneck speed while our economy limps along the edge of a precipice.  Scientists examine all possibilities.  Economists bury their heads in the sand, cowering in the face of criticism and unwilling to ponder where their single-minded devotion to growth may lead.


America’s Worst Trading “Partners”

April 2, 2014

The word “trade” implies a mutually beneficial exchange of goods and services.  I buy stuff from you and, in return, you buy stuff from me.  A good trading partner is a nation that buys (imports) as much as it sells (exports).  A bad trade relationship is one in which a nation sells (or exports) while buying little in return.  Such a relationship isn’t mutually beneficial.  In such a relationship, one nation creates jobs at the other’s expense and drains funds away from the other’s economy.

America’s free trade policy has resulted in both good and bad trade relationships.  On balance, its many beneficial trade relationships have been more than offset by a minority of really bad ones.  But what’s the best way to judge?  Some differences in trade imbalances are due to a huge disparity in the size of nations.  Is a big nation that maintains a large trade surplus with the U.S. any better than a tiny nation with a proportionately large imbalance?  The only way to judge such imbalances fairly is to express them in per capita terms.  That is, how much does each person in that nation buy from the U.S. vs. how much they manufacture and sell to us? 

When expressed in per capita terms, the results are surprising.  Here’s the list:  Top 20 Deficits, 2012.  The key take-aways from this list are as follows:

  • Note the population density of the nations on this list.  By comparison, the population density of the U.S. is approximately 86 people per square mile.  Eighteen of these twenty nations are more densely populated than the U.S.  Eight are more than five times as densely populated.  In fact, the average population density of the nations on this list is 493 people per square mile – more than five times the density of the U.S.  Only two are less densely populated – Sweden and Finland.  When I first published this list in 2006 in Five Short Blasts, Sweden ranked number two.  By 2012, they have fallen to number eleven.  And their surplus with the U.S. has been reduced by half. 
  • Note the “per capita purchasing power parity (PPP)” of the nations on this list.  By comparison, U.S. PPP is approximately $48,500.  Most of the nations on this list are relatively wealthy nations, debunking the myth that trade deficits are caused by low wages.  If low wages are to blame, how do you explain the presence of Ireland, Switzerland, Taiwan, Denmark, Germany, Japan and Austria (among others) in the top ten of this list?  Also, the PPP of this list has risen dramatically in the past six years.  (More on this topic in a later post.)
  • Though China gets all of the attention for its massive trade deficit with the U.S., it barely makes the top 20 list, coming in at number 18.  It has risen only one place on this list since 2006.  In per capita terms, its trade imbalance with the U.S. is rather unremarkable relative to the other nations on this list.  In fact, when you understand the role that population density plays in driving trade imbalances, the huge trade deficit with China, given its sheer size and enormous population, is exactly what should have been expected. 

People who live in overcrowded conditions buy fewer products because they have no room to utilize them.  They buy or rent smaller homes because there is no room for larger homes.  They own fewer cars because their roads are choked with traffic and they choose mass transit instead.  Because their homes are smaller, they buy less furniture, far less lawn and gardening equipment and smaller appliances.  They buy less sporting equipment like boats, golf equipment, tennis equipment – you name it – simply because of the scarcity of resources for using such.

When two nations grossly disparate in population density atttempt to trade freely with each other, the work of manufacturing is spread evenly across the combined labor force, but the disparity in per capita consumption remains.  They buy less from us than we buy from them.  The result is inescapable – a trade deficit and loss of jobs for the less densely populated nation.  In effect, a host-parasite relationship is established in which the more densely populated nation feeds on the market of the other nation.  The less densely populated nation pays the price for the other nation’s overpopulation.  It hardly seems fair, does it?