The never-ending recession

What is it about the Keynesian dominated international agencies? 

The OECD thinks of itself as the acme of the global forecasting mafia.  In 2011 its review of the US economy said, “Bouyed by substantial policy support and improving financial conditions the economic recovery is progressing.”  It forecast growth of GDP at 2.6 per cent in 2010 and 2011 but growth fell to 1.8 per cent in 2011. 

The 2014 report placed last year’s growth at 1.9 per cent and the forecasts are for 2.5 per cent this year and 3.5 per cent next year.  Yet, GDP fell at an annual rate of 3 per cent in the first quarter of 2014

The language remains upbeat, “The US economy is recovering from the Great Recession and near-term prospects are favourable”; and “… the US economic recovery is regaining momentum”.  Yet, the data shows this is the most sluggish recovery in history and employment levels remain below the previous ones after six years after the so-called trough.   

The budget deficit remains at 4 per cent of GDP Housing is counted as a part of the recovery yet new starts are pretty flat over the past year and actually fell 6.5 per cent in May. 

A bright spot is the energy sector.  In spite of the Administration’s best endeavours, the shale gas boom over the past 6 years has brought this unconventional gas to comprise one third of gas production.  But the driver for growth, non-residential business investment, having increased somewhat during the past couple of years on the back of lower energy prices and restrained wage levels, fell in the most recent quarter and remains three percentage points below the pre-recession share of GDP which was around 16 per cent. 

The massive increase in government debt and money creation brings its own risks of an economic collapse but even without this the likelihood of the US economy resuming its pre 2008 growth path seems remote.   

This entry was posted in Uncategorized. Bookmark the permalink.

50 Responses to The never-ending recession

  1. brc

    But where to from here?

    Could the bad policies of the past decade or so actually be undone? If a knight in shining armour rode out of the woods, gained the presidency in 2016 and set the country on track….is it too far gone? Has the rot set in too deeply?

    I don’t see a path forward for the US from here. Maybe that is lack of imagination. It would take a decade of productivity growth and a wholesale abandonment by voters of entitlement politics to turn the ship around. I just don’t see how a recovery, or even a slowdown in decline, is possible.

    AFter years of failed policies regarding employment and economic improvement, the most you’ll hear is that the same policies need to be tried with more vigour.

    There’s no Friedman and no Reagan around. There’s Krugman and Obama, and try arguing with anyone educated to college level that they are on the wrong track and you’ll get a brick wall response.

  2. Aristogeiton

    Are you going sans serif, Sinc?

  3. Hydra

    and try arguing with anyone educated to college level that they are on the wrong track and you’ll get a brick wall response.

    I am slowly trying to teach my former Liberal club members at Deakin the way of Austrian economics and Say’s law so they can quietly spread the word amongst like-minded commerce students.

    However past that it is very difficult to get the word around as most students benefit from the ridiculous youth allowance system and won’t hear a bar of “cuts”.

    Keynesian economics is simply too easy to understand. There is no level playing field because it doesn’t exist in the textbooks.

    Cries of “unfairness” are rife these days everywhere – what about the “unfairness” in the non-socialists having their opinion not just heard but actually actioned?

  4. goatjam

    “The budget deficit remains at 4 per cent of GDP”

    I see and hear variations of this everywhere and I cannot understand why this is relevant. This also applies to descriptions of government debt levels, as in “Government debt is X per cent of GDP”

    Why is government debt/deficit always compared to the Gross Domestic Product and not to government receipts?

    If I work for the WidgetCo company which has gross turnover of $10 million would it be valid for me to proudly claim that my $500K mortgage is only “5% of WidgetCo’s Gross Earnings” instead of comparing it to my measly salary of $50K?

    The reason I ask this is because I hear a lot of people comparing government debt vs GDP to that of your average homeowners debt (mortgage) vs income and on that basis it doesn’t look so bad (assuming you are a drooling low information Labor voter of course) but to me this is like comparing apples with oranges.

  5. Demosthenes

    Yet, the data shows this is the most sluggish recovery in history and employment levels remain below the previous ones after six years after the so-called trough.

    The Boston Consulting Group thinks “the U.S. could have a worker surplus equal to between 10% and 13% of its labor force in 2020 and of 4% to 11% in 2030″ ie unemployment as far as the analyst’s eye can see.

    Are you going sans serif, Sinc?

    Possibly a cut & paste from Word by Alan that retained his favoured typeface.

  6. Empire

    Cries of “unfairness” are rife these days everywhere – what about the “unfairness” in the non-socialists having their opinion not just heard but actually actioned?

    Axiomatic for sane adults, blasphemous for moochers:
    “there is no such thing as the fairness fairy”

    h/t Elliot Epstein

  7. brc

    The reason I ask this is because I hear a lot of people comparing government debt vs GDP to that of your average homeowners debt (mortgage) vs income and on that basis it doesn’t look so bad (assuming you are a drooling low information Labor voter of course) but to me this is like comparing apples with oranges

    Julia Gillard uttered this howler as part of her election campaign and not a single member of the media called it out, not even the likes of Andrew Bolt. She used the ‘like a person earning $100,000 getting a $7,000 mortgage’ or something.

    No, no it isn’t Julia.

    I suspect she wouldn’t have had the smarts to know the difference anyway. So I doubt even she realised she was peddling lies.

    An innumerate population is just as bad as an illiterate population.

    The other part to the magic pudding spending is that borrowing and spending actually pushes up GDP in the year in which it is spent – so it makes the problem look less worse than it really is. It’s like borrowing money and counting that as part of your income, then saying your borrowing isn’t bad, because it’s not too high compared to your income, which includes the borrowing.

  8. Bruce of Newcastle

    The US Federal deficit is 22% of their total revenue. The interest they currently pay is 14% of total Federal revenue. If interest rates were to rise to only 6% this would increase to over a trillion dollars a year, one third of Federal revenue. Heaven forbid if the interest rate they had to pay went above that.

    Unless the US can get their budget under control they are rooted.

  9. thefrollickingmole

    But Keynes offers politicians the relaxing opiate of “doing something”

    Heres a hypothetical.
    Press are assembled, question is asked “what will you do about the weakness in the economy”
    “Nothing”
    What do you mean?
    “Nothing at all except reduce outlays and allow the market to clear itself”

    The journos would have emus flying out their asses at not being told daddy government will make it all better..

  10. Hydra

    But Keynes offers politicians the relaxing opiate of “doing something”

    What I don’t understand is that how three entire generations of economists have managed to convince themselves that spending money that doesn’t actually exist is a sound way to run anything.

    I mean, that sounds bad simply on principle, but is even more ridiculous in practice.

  11. Craig Mc

    All that’s missing is the Glenn Reynolds™ “unexpectedly”.

  12. Dr.Sir Fred Lenin

    It always astounds me that some grubby little trade union lawyer,or failed schoolteacher ,has all this power to waste Taxpayers money? As Julius Sumner Miller used to say ” Why is it So”. We just had the lunch boy from the Beijing Embassy ,and a Shifty Criminal of a lawyer ,spending Our money like besotted socialists,with a former official of a very minor trade teachers union as Treasurer,well I suppose after all he was used to handling hundreds of dollars! Williamson would have been more appropriate ,he was used to Stealing Millions!

  13. brc

    Unless the US can get their budget under control they are rooted.

    But are they already past the point of no return? I think that is the relevant question.

    It’s a curious case of failure in governance theory – that a government can impoverish itself and it’s citizens – but there appears to be no safety valve or way to stop it. It’s like the founders thought of every way a tyrant could be stopped from gathering too much power, but failed to see the public might turn around and vote for their own tyranny and the hands of people promising an easy life – one that someone else will pay for.

    I was reading some responses to a simlar thread in another forum – and people were stating ‘R&R was disproven, therefore 100% GDP/Debt doesn’t matter’.

    It fails even the most simple sniff test, but there are people – educated people – out there believing this to be true. How can you prevent that type of mass idiocy from destroying things? I don’t think you can, unless you produce an unusually charismatic yet selfless leader to communicate the concepts to people and get them to understand the importance of longer range thinking.

    I think it’s done, all we are doing is arguing the timeline of events.

  14. .

    thefrollickingmole
    #1367364, posted on July 2, 2014 at 4:56 pm
    But Keynes offers politicians the relaxing opiate of “doing something”

    Heres a hypothetical.
    Press are assembled, question is asked “what will you do about the weakness in the economy”
    “Nothing”
    What do you mean?
    “Nothing at all except reduce outlays and allow the market to clear itself”

    The journos would have emus flying out their asses at not being told daddy government will make it all better..

    Cut taxes
    Deregulate
    Asset sales
    Otherwise privatise
    Remove foreign ownership barriers
    Allow strong businesses to buy out weak ones and thereby employ more workers to use machinery

  15. stackja

    Liberty Quotes
    Keynes did not refute Says Law. He rejected it emotionally, but he did not advance a single tenable argument to invalidate its rationale.
    — Ludwig von Mises

  16. Tel

    The reason I ask this is because I hear a lot of people comparing government debt vs GDP to that of your average homeowners debt (mortgage) vs income and on that basis it doesn’t look so bad (assuming you are a drooling low information Labor voter of course) but to me this is like comparing apples with oranges.

    It makes sense if you add up public and private debt to get total debt, then compare that against GDP. Then you have the ratio of all productivity vs all debt… give or take your belief in GDP being somehow related to production.

  17. JC

    Although government debt is expressed as a ratio to GDP and has become an acceptable ratio, the real way to compare it to a semblance of household debt is to show it as a ratio against tax receipts – both the interest payments and the debt outstanding.

  18. johanna

    brc
    #1367435, posted on July 2, 2014 at 5:38 pm

    Unless the US can get their budget under control they are rooted.

    But are they already past the point of no return? I think that is the relevant question.

    It’s a curious case of failure in governance theory – that a government can impoverish itself and it’s citizens – but there appears to be no safety valve or way to stop it. It’s like the founders thought of every way a tyrant could be stopped from gathering too much power, but failed to see the public might turn around and vote for their own tyranny and the hands of people promising an easy life – one that someone else will pay for.

    I think it’s a bit more complicated than that, brc. They couldn’t account for the growth of the “Imperial Presidency” – which Mark Steyn illustrated so well with his story a while back of the 92 car Presidential motorcade. For example, the fact that Obummer simply announces that parts of laws passed by the legislature no longer apply, such as happened with ObummerCare. The fact that he cheerfully tells US citizens that if their elected representatives will not vote for something – like crazy, suicidal policies driven by warmie junk science – he will just achieve it by executive decree via the EPA. The vast majority of the US media report this as though it is perfectly natural. The Republicans are mostly so spineless and/or compromised that they just go along. Who cares about the Constitution, or accountability? Everyone’s getting something into their ricebowl.

    Centralisation of power in the US started with the New Deal, and has been eating into the body politic ever since.

    Incidentally, a while back I took the trouble to inquire how it was that the EPA could make regulations without Congressional agreement – indeed, in the face of Congress. Well, it turned out that they handed those powers to the Feds in return for money as part of the New Deal. Does anyone see any parallels with what State governments have been doing here?

    Keating was right when he said – never get between a State government and a bucket of money. It happened in the US, and it’s happening here.

  19. Tel

    What I don’t understand is that how three entire generations of economists have managed to convince themselves that spending money that doesn’t actually exist is a sound way to run anything.

    After studying money for many years, most economists discover that they do like it.

  20. johanna

    “they” in the second last para referred to the States. Previously, the EPA powers were individually vested in them. But, State politicians of the time were offered money to shower on voters, and gave away those powers in a heartbeat in return for re-election.

  21. H B Bear

    Who is doing the OECD forecasting?

    The Goose? He had the same problem.

  22. Tel

    How can you prevent that type of mass idiocy from destroying things?

    It’s all about capturing the learning. Keynesian’s will burn themselves out if they are not given new resources to consume. When it fails they will look to blame anyone but themselves, that’s when starting a war will be an attractive option. Think of ways to prevent that happening.

  23. Michel Lasouris

    ‘Bouyed by substantial policy support”
    Spellcheck
    Smack!

  24. brc

    It makes sense if you add up public and private debt to get total debt, then compare that against GDP. Then you have the ratio of all productivity vs all debt… give or take your belief in GDP being somehow related to production

    I’m not arguing specifically against using GDP/Debt ratio as a comparison between countries – more with people expressing it in simple terms of mortgage/income ratio- which it is patently not.

  25. Alfonso

    US bottom line….. continuous QE. Note 401s have got nowhere to go, shares are it or it’s minus return after CPI plus tax on fixed interest / bonds. The Japs are also QE ing their arses off.
    The Fed put will reign supreme until the US$ implodes.
    The trend is your friend……but be sure to sell your horse before it dies.

  26. Andrew

    Is there a single rational policy that the general public will support? Even previously non-controversial policies have become electoral poison. Remember when Howard6666 used to get grudging respect for running surpluses? A non-exhaustive list of things that the general public will no longer tolerate:
    - balanced budget, or even some attempt to reduce the deficit from the current SIX times the all-time record
    - govt spending growing at GDP or less
    - border protection, where involving measures more severe than politely requesting them not to come illegally any more
    - secrecy in military operations
    - paring back the more ludicrous bits of the telco system before it blows up $90bn
    - paying a couple of bucks to see the doc
    - indexing fuel annually by less than 1c/L
    - reducing all tax brackets
    - labour market reform
    - giving subsidies to big business
    - NOT giving subsidies to big business
    - identifying and prosecuting corrupt union officials
    - adequately funding the military
    - abolishing taxes and other imposts on fuel, electricity
    - having incentives to produce in AUS as opposed to moving economic activity to China
    - tax relief for self-funded retirees
    - logging, including in plantation forests previously logged
    - cheap gas
    - commercial fishing
    - dredging existing ports
    - ships coming and going to AUS via Qld
    [in the US] – expecting wymin to pay for their own contraception and (failing that) abortions

  27. brc

    Note 401s have got nowhere to go, shares are it or it’s minus return after CPI plus tax on fixed interest / bonds.

    Being an observer of the classic car market, the QE has put a rocket under that. Some models are up 25-30% in the last 6-12 months. I suspect other collectible markets are showing similar gains. The big money rare cars are really taking off.

  28. Tel

    US bottom line….. continuous QE. Note 401s have got nowhere to go, shares are it or it’s minus return after CPI plus tax on fixed interest / bonds. The Japs are also QE ing their arses off.

    Sooner or later the money printing must turn into price inflation.

    I mean, it’s logically impossible to have a constantly increasing supply of money chasing the same or less goods without prices going up somewhere along the line. The US has seen moderate inflation (especially on inflexible essential purchases) but Japan is getting worse inflation. For the US, lots of people have cut back their standard of living, losing jobs so they can’t afford to buy luxuries and thus price inflation is kept under control to some extent. There’s a floor though; people cut back for a while, but they won’t cut past a certain point, they will insist on buying the basics: food, fuel, transport, electricity, rent.

    The next big turning point for the USA is when we start to hit that floor…

  29. brc

    Take a look here if you want to see where all that ‘free’ money is flowing into:

    1979 Porsche Carrera Turbo Price Index

    Or this one:

    1965 Ford Mustang V8 Price Index

  30. Alfonso

    Hee, hee, you bet brc….I recommend antiquarian Fly Fishing books for the discerning investor……panda scrotums are in downturn.

  31. brc

    Hee, hee, you bet brc….I recommend antiquarian Fly Fishing books for the discerning investor……panda scrotums are in downturn.

    Not sure what this comment means. Are you saying people shouldn’t buy collectibles they understand as inflation hedges?

  32. James B

    The US has a few things going for it:

    * A free labour market.
    * A free land market (housing is cheap because of this).
    * A free resources sector (this is manifesting itself recently in the fracking boom).
    * A culture of hard work
    * Lowering debt and increasing economic freedom at the state level

    The big problem for them is the federal government, particularly its debt, and the Federal Reserve. But I honestly reckon it’s looking pretty good for America.

  33. JC

    JamesB

    Naaa I think it’s fucked.

  34. MartinG

    James B
    #1367837, posted on July 3, 2014 at 12:48 am

    The big problem for them is the federal government, particularly its debt, and the Federal Reserve. But I honestly reckon it’s looking pretty good for America.

    Not with the traitor Obama as president it isn’t.

    The sabotage of the Keystone Pipeline System and the current policy of funding Syrian terrorists are examples of the treachery his administration brings to the table. He has employed the EPA to carry out his warped obsession with destroying USA industry. The USA is marginally less of a basket case than the EU.

    The Chinese will be pissing all over them before long.

  35. Tel

    James B, let me throw up some counterpoints on the USA:

    * Many cities are too deep in dept to dig themselves out (e.g. Chicago).
    * Increasing reports of violence by police against citizens.
    * Many cases of federal incompetence, corruption, and (depending on your point of view) outright lawlessness.
    * Utter refusal to question the Keynesian dogma.
    * Student loans clearly in bubble territory (possibly deliberately), education costs soaring.
    * Medical system being disrupted by bungled Obamacare rollout (and it isn’t over yet).
    * Social security looking shaky after perhaps 10 years, unless things turn around.
    * Employment participation still falling.

  36. JohnA

    Aristogeiton #1367309, posted on July 2, 2014 at 4:11 pm

    Are you going sans serif, Sinc?

    Let’s send him an invitation to restore the tops and tails, courtesy of Mr Astaire.

    After all, we are all class here :-)

  37. JohnA

    brc #1367791, posted on July 2, 2014 at 11:24 pm

    Hee, hee, you bet brc….I recommend antiquarian Fly Fishing books for the discerning investor……panda scrotums are in downturn.

    Not sure what this comment means. Are you saying people shouldn’t buy collectibles they understand as inflation hedges?

    Aren’t you both agreeing that asset inflation is where the price increases are occurring? Rather than daily consumption items and the CPI?

  38. alan moran

    BRC
    Those trends are most interesting. They may indicate a flight to wealth preservation in the face of uncertainty or possibly (which may be the same thing) a reduced availability of good prospective investments.

    I cannot find that car series going back but suspect that previous periods where searches for a store of value led to explosive collectable prices may correlate with economic malaise. I wonder if anyone has such data

  39. Alfonso

    Indeed brc, inflation is your enemy so any investment must ‘participate’ in inflation but illiquid asset classes with cognoscenti valuations like collectibles might not be the best choice for non expert punters.
    China will always be the supplier of last resort for High St shoppers, consumer item inflation other than food should be under control way into the future.

    Fly Fishing books are not a joke, they were the world’s best appreciating collectible over a decade in a Time Mag survey 20 odd years ago, alas my collection has many beer stains and notes in the margins, for love not money.

  40. brc

    alan – I think they are a relatively new thing, although top-grade investment vehicles probably have a longer price history going back.

    There was a classic car price boom in the mid-late 8os that popped severely when the 90s recession bit.

    Of course the 1970s had general inflation problems and I have been told by those at the time that dentists could reliably buy a mercedes, drive it for two years, and then come back and trade it in for more than they paid. I assume they still lost money as the new prices went up. I think that is a different thing to fast-rising classic car prices. Note that not all makes are experiencing the same inflation – I guess like painters some are in vogue and some are out of vogue.

    Alfonso ; thanks for the clarification. I totally agree that buying into a collectible market for those with no interest or understanding is a terrible idea. But if it’s your hobby, it doesn’t hurt if the item is keeping up with inflation, even if the official inflation looks nothing like what the asset inflation does.

  41. Alan Moran

    Stanley Gibbons has a rare stamp index but it may not go back far and a more important index would cover the relatively rare like the vintage car index

  42. Ellen of Tasmania

    It’s a curious case of failure in governance theory – that a government can impoverish itself and it’s citizens – but there appears to be no safety valve or way to stop it. It’s like the founders thought of every way a tyrant could be stopped from gathering too much power, but failed to see the public might turn around and vote for their own tyranny and the hands of people promising an easy life – one that someone else will pay for.

    “The Founding of our nation really was exceptional, because the men who drafted our Constitution knew that American politicians, taking one thing with another, would be every bit as sleazy as the same class of men from any other clime. …. Surprise! Crossing the Atlantic did not change human nature. …

    The Founders knew we were not exceptional, and drafted a Constitution that did not trust us, not even a little bit. The subtext of the Constitution is not “beware of the English crown,” and it is not even “beware of the commies from the Soviet Union.” The subtext of the Constitution is that we are constantly to beware of boobus Americanus and the inveigling mountebanks they elect. We are particularly to watch their beady little eyes (Art. I, Sec. 2), their greasy palms (Art. III, Sec. 1), their sweaty foreheads (Art. II, Sec. 4), and their glowing promises filled with Uplift and Sunshine (Art. IV, Sec. 4).

    That self-awareness really was exceptional. But we have now lost anything resembling such humility, and have replaced it with an Ozymandian pride, and are the laughingstock of the angels crammed into the balcony at the celestial matinee, who have seen ten empires rise and fall, and it is not even lunch yet.”

    (http://dougwils.com/s7-engaging-the-culture/uplift-and-sunshine.html)

  43. .

    I think it’s a bit more complicated than that, brc. They couldn’t account for the growth of the “Imperial Presidency” – which Mark Steyn illustrated so well with his story a while back of the 92 car Presidential motorcade.

    Dominate or Principate?

    The VP is Princeps Senatus. The President is the Consul. The speaker has Tribunican power.

    Why can’t the House do anything?

  44. Boambee John

    “Cries of “unfairness” are rife these days everywhere – what about the “unfairness” in the non-socialists having their opinion not just heard but actually actioned?”

    The cries of “unfairness” often seem to be based on the idea that some (uni students, social security recipients, DSP recipients, asylum seekers) are owed a living by others, and should not (either at all, or for a time) have to work to support themselves.

    I think that it is at least arguable that to expect others to work to support those who decline to support themselves is a form of slavery.

    Do we really want that system entrenched?

  45. johanna

    A lot of Americans are asking that question, Dot. The selection process for Congress seems to mostly reward timorous, compromised jellybacks. There are lots of things they could do, but won’t.

  46. What ever it takes

    The USA could end up with some States wanting to secede, leaving the Dem States with all their mega debt and crazy policy ideas. The others could set about rebuilding the New USA, hopefully without another civil war.

  47. rebel with cause

    Australia did well to keep its head above water for a while, but I’d say deficits will be par for the course from now on. There is nothing in it for politicians to return a surplus. Not while they can still get a loan.

  48. Tim Neilson

    rebel with cause
    #1368221, posted on July 3, 2014 at 1:45 pm
    That’s what was so disappointing about the Budget. They had one shot at cutting really deep, then being able to make political capital from a few slight concessions in the next two budgets, and they squibbed it virtually 100%. Despite Hockey, Abbott and Cormann’s self-fellation about how courageous and tough they were being, Commonwealth expenditure is budgetted to increase every year across the forward estimates and they are betting the whole farm on tax increases producing enough revenue growth to result in surpluses. I think Hockey understands the difference between solvency and insolvency, which puts him a trillion light years ahead of Goose Swansteen, but that’s about all this government has going for it as economic managers.

  49. mundi

    The budget was pathetic, which ever way you look at it.

    So they made a few small cuts, but then just spent it on other areas. Why even bother? Just handed Labor the next election on a silver platter.

    The cuts should have been much deeper, and they should have been accompanied by no new spending and tax cuts. If Abbott just cut income taxes to give everyone $50 per week extra in their pay, he would get elected over and over and win way easier than Howard did.

  50. iamok

    I think it’s done, all we are doing is arguing the timeline of events.

    Sadly brc I have thought this for some time. I can’t see a way out or back.

    From Soul Asylum’s Runaway Train:

    can you help me remember how to smile?
    make it somehow all seem worthwhile
    how on earth did i get so jaded?
    life’s mysteries seem so faded
    i can go where noone else can go
    i know what no one else knows
    here i am just drownin’ in the rain
    with a ticket for a runaway train

    and everything seems cut and dry
    day and night
    earth and sky
    somehow i just don’t believe it

    runaway train, never goin’ back
    wrong way on a one-way track
    seems like i should be getting somewhere
    somehow i’m neither here nor there

Comments are closed.