Who stole my cheesy economy? - Eric Janszen

[audrey_girl]

Re: Who stole my cheesy economy? - Eric Janszen

I would think that watching star trek while on the treadmill makes you a trekkie, entry level one I suppose since you don't speak the alien languages yet.

Thanks for the title, I may try to dig such episode up as it peaked my interest.

for the literate trekkies among us:

http://www.amazon.co.uk/Klingon-Haml.../dp/0671035789

[LargoWinch]

Re: Who stole my cheesy economy? - Eric Janszen

The don agrees with EJ.

Sell this stinking rally.

Amen.

[DaveBrown42]

Re: Who stole my cheesy economy? - Eric Janszen

The don agrees with EJ.

Sell this stinking rally.

Amen.

I look forward to seeing that Cramer clip on the Daily Show after the next big sell-off.

I don't know if I blame Cramer. His show format pretty much only works in a bull market. He'd probably be fired if every day he just said "Buy gold and hold it" and spent the rest of his show instructing the viewers on how to accurately paint landscapes.
His viewers would do a lot better financially, but it wouldn't be very good for ratings.

[DaveBrown42]

Re: Who stole my cheesy economy? - Eric Janszen

No one can say how the US and the world economies could have recovered from the failure of the old New Deal programs to re-start the post 1920s credit bubble economy if WWII had not occurred.

How to halt debt deflation and induce demand creation in a world of over-capacity and over-indebtedness without war? That is the question. All other questions are irrelevant.

This question is a bit offtopic, so if it doesn't belong in this thread I'll gladly ask elsewhere.

So WWII was what finally ended the Great Depression, right? But since war is the ultimate Keynesian dig-a-hole-and-fill-it, why did that actually work? I don't understand how the economy blossomed after the end of the war despite the loss of military spending. Or did we just keep all those war jobs and continue increasing military spending indefinitely? Was the seemingly prosperous "post-WWII to 1970s" era simply a long-delayed continuation of the 1920s pre-Depression bubble? If so, that's pretty depressing, since it implies that we've never truly recovered from the Great Depression at all.

[c1ue]

Re: Who stole my cheesy economy? - Eric Janszen

This question is a bit offtopic, so if it doesn't belong in this thread I'll gladly ask elsewhere.

So WWII was what finally ended the Great Depression, right? But since war is the ultimate Keynesian dig-a-hole-and-fill-it, why did that actually work? I don't understand how the economy blossomed after the end of the war despite the loss of military spending. Or did we just keep all those war jobs and continue increasing military spending indefinitely? Was the seemingly prosperous "post-WWII to 1970s" era simply a long-delayed continuation of the 1920s pre-Depression bubble? If so, that's pretty depressing, since it implies that we've never truly recovered from the Great Depression at all.

Dave,

It has been talked about obliquely in this thread as well as more directly elsewhere.

In summary it is not just the massive expenditures of the WW II effort itself, but the wartime suppression of public consumption resulting in high liquidity (wartime bond purchases) and a long term captive market supporting jobs involved with rebuilding Europe and Japan which 'created' the end of the Depression and the foundations of the '50s golden era.

Those who think that a new Cold War or shooting war can restart the economy are sadly mistaken.

For one thing, the amount of time/"savings" needed to both reverse existing debt levels and rebuild a new liquidity pool (assuming no MASSIVE inflation) is measured in the decades/tens of trillions.

Secondly a repeat of the post-Depression recovery also means Europe, Japan, AND China all receiving massive infrastructure damage WITHOUT the US also getting so damaged.

These two scenarios are both highly improbable. The former is partially possible via inflation/hyperinflation in the sense of negating existing debt, but this path does little to build future liquidity.

[Chris Coles]

Re: Who stole my cheesy economy? - Eric Janszen

This question is a bit offtopic, so if it doesn't belong in this thread I'll gladly ask elsewhere.

So WWII was what finally ended the Great Depression, right? But since war is the ultimate Keynesian dig-a-hole-and-fill-it, why did that actually work? I don't understand how the economy blossomed after the end of the war despite the loss of military spending. Or did we just keep all those war jobs and continue increasing military spending indefinitely? Was the seemingly prosperous "post-WWII to 1970s" era simply a long-delayed continuation of the 1920s pre-Depression bubble? If so, that's pretty depressing, since it implies that we've never truly recovered from the Great Depression at all.

We have all been drawn into an illusion of our own making. It was not the war that drove the engine of prosperity, it was the way the majority treated investment. if you look at the business of manufacturing, for example, B17 bombers, the bombers were in fact a very good example of what I have been trying to get across elsewhere. Take as an example, fly a hat as it were, and assume the US did not help in WW2 but instead sat it out with no involvement. The investments that resulted in the B17, and up did not happen, nor for that matter, into the nuclear bomb, aircraft carriers, everything that was produced involved investment for the creation of products that, in many circumstances were blown to bits within months of manufacture. All that investment is what created the prosperity, not the war per se.

So it was not the war as such, it was the investment.

If that is indeed the case, then the answer to EJ's question: How to halt debt deflation and induce demand creation in a world of over-capacity and over-indebtedness without war? is simple - to invest in anything.

The answer is to, instead of giving all the money to the banks, create a new institution, or use existing ones and say to everyone with an idea for the creation of..... whatever..... here, take the investment, go create prosperity.

I ask another question:

Are we so stupid that we can only think of a war to drive such investment?

[santafe2]

Re: Who stole my cheesy economy? - Eric Janszen

The lead economic story today is capacity utilization and output, or, more to the point, the lack thereof...As usual for this depression, the February decline was far worse than most "economists" expected...Capacity utilization for manufacturing alone fell in February 2009 to a new record post-war low of 67.4.0%.

Thanks for this chart EJ. Of interest to me is where we think we'll bottom. We can see from the previous 5 recessions that CAP-U falls sharply during a recession and "V" bottoms at the end of a recession. This begs the question, when do we think this recession will end? That is, technically, when will GDP stop contracting?

Since my estimates for GDP are quite low and I don't have time to support them here, let's just ask this question: If GDP were to drop an additional 10% before the bottom, how far would CAP-U fall? 50% does not seem out of the question.

And the follow-on question would be: If CAP-U falls to 50% how does that correlate to job loss?

[Shakespear]

Re: Who stole my cheesy economy? - Eric Janszen

The Poles must be thinking "See, we told you so..."]

The Poles are not any smarter than the rest. They are in the habit of saying a lot and doing exactly the opposite.

They had a chance to sign agreements with Norway and chose instead with that reliable ally of its ,Russia. Why? CORRUPTION and small minded thinking.

Poland is a divided house, one which the more I observe it the more I am convinced that it will not get its act together in this Century.

[bart]

Re: Who stole my cheesy economy? - Eric Janszen

More food for thought:

[FRED]

Re: Who stole my cheesy economy? - Eric Janszen

Thanks for this chart EJ. Of interest to me is where we think we'll bottom. We can see from the previous 5 recessions that CAP-U falls sharply during a recession and "V" bottoms at the end of a recession. This begs the question, when do we think this recession will end? That is, technically, when will GDP stop contracting?

Since my estimates for GDP are quite low and I don't have time to support them here, let's just ask this question: If GDP were to drop an additional 10% before the bottom, how far would CAP-U fall? 50% does not seem out of the question.

And the follow-on question would be: If CAP-U falls to 50% how does that correlate to job loss?

Indeed they are strongly correlated.

From Aug 2008: Unemployment by industry: Brace for Impact

• Total Private Sector Employment: Employs 118 million
• Total US Government Employment: Employs 23 million
• Goods Producing: Employs 22 million
• Service: Employs 118 million

We cannot make an apples to apples comparison because the FIRE Economy didn't get going until the early 1980s to restructure the US economy, including the composition of its labor force.

Before the 1980s recessions there were 25 million Americans working in the Goods Producing sector or 32% of 77 million total Private Sector employment. Today the Goods Producing sector employs only 22 million out of 118 million Private Sector jobs, or 18%. Arguably, a large portion of those goods producing jobs are dependent on the FIRE Economy, especially real estate.

To answer your question, it's hard to say because while CAP-U and unemployment remain strongly inversely correlated, and a near 50% increase in unemployment from 6.5 million to 12.3 million occurred at the same time as a 16% decline in CAP-U, an additional 25% decline in CAP-U from 67 to 50 may produce another doubling of unemployment to 24 million, but that assumes the ratio remains proportionate.

[orion]

Re: Who stole my cheesy economy? - Eric Janszen

Who stole my cheesy economy?


How to halt debt deflation and induce demand creation in a world of over-capacity and over-indebtedness without war? That is the question. All other questions are irrelevant.

I think we need to do more research on previous panics and manias. 1930 was not the only debt deflation event in world history. Do all debt deflations lead to wars? A war (and more importantly rebuilding the capacity destroyed during the war, especially to your competitors) is a quick fix with big upside for the winner. Maybe after suffering a slow road to liquidate mal-investment we'll recognize what a weapon of mass destruction credit can be?

[due_indigence]

Re: Who stole my cheesy economy? - Eric Janszen

Cold wars don't yield infrastruture destruction. They create Pentagon bubbles. The enemy is mass market capacity and its proliferation. This move to surgical military precision and special forces is a disaster. MBA-technocrats in the McNamara/Rumsfeld mold don't understand the culling function of war. Now even WW III won't save us. What was the military industrial complex thinking? War is a potent economic tool only insofar as it indiscrimately destroys huge swathes of men, materiele and industrial capacity, preferably more of the latter. I would say the Chinese lower tech forces have a distinct competitive advantage. War has a glorious legacy of inefficiency. We need it back. The world is drowning in efficiency. We need to euthanize capacity big-time.


If large-scale war has been overtaken by efficiencies, the world needs something to sink its teeth into. Yes, green, alt-eng, something.

Maybe the Israelis need to precipitate war with Iran. I may be coming around to the economic wisdom of PNAC's Middle East Marshall Plan. I may become a convert to Zionism strictly on macroeconomic grounds.

[Chris Coles]

Re: Who stole my cheesy economy? - Eric Janszen

Will someone tell me the difference between someone dropping, say, a bomb and another arriving with a Bulldozer to do the same thing, destroy a building so that it will have to be rebuilt?

What I am trying to get across is that we do not need any form of war to create new prosperity, we only need to change our perception of what is possible. Right now, all we seem to be able to accept is that:

"we always did it that way, so we must always do it that way",

So, why not try something different?

[nero3]

Re: Who stole my cheesy economy? - Eric Janszen

Militarism rose out of the great depression but all the allied powers were overextended and caught flatfooted. What is the exact figure? In 1941, the US military ranked something like number 12 in the world?

Today, the the answer on how to avoid major war is:

Pax Americana

The US military is so powerful that no other nation could stage any meaningful raid anywhere in the world without worrying about US response.

Barring a sneak attack in cyberspace shutting down the US military internet and satellite capabilities long term, Every nation has to include in their calculus the reaction of the US.

Sorry for the thread drift. Back to the matter at hand.

Greg

I wonder who was the strongest military power before WW2. How about Germany? I think it's a scary comparison.

[ThePythonicCow]

Re: Who stole my cheesy economy? - Eric Janszen

... and a long term captive market supporting jobs involved with rebuilding Europe and Japan ...

Sometimes I suspect that our "science" of economics is too focused on modeling scarcity, whereas in the current world, we can, when focused, produce more stuff than we need. Destruction by wars and wastefulness by inefficiency and corruption are two of the ways we cope with excess productive capacity.

The opportunity to first blow up, then rebuild Europe and Japan provided a use for America's excess productive capacity for a couple of decades. Then the opportunity to build too many McMansions for American and European NINJA buyers provided a use for the Orient's excess productive capacity for another couple of decades.

I also suspect that the "science" of politics is too focused on equality of result, whereas in the current world, it is better to focus on justice, not "fairness of results", meaning you get what you deserve, be that nothing much if you're lazy, or punishment if you're bad. It should be evil to have what you didn't earn, not evil to have more than your neighbor.