Tag Archives: GDP

QE Apologia

Now that the Fed has ended QE3, people are starting to evaluate the results. The economist has a roundup of academic studies. Positive findings about QE are generally the “could have been worse” variety. The various studies claim:

  • QE generated some inflation, but not enough
  • It did not generate hyperinflation
  • It did not contribute (much) to inequality
  • The “reach for yield” was justified

The quotation below pretty much sums up Jeremiah’s opinion. We cited hyperinflation as a risk, early on, but the real concern is trillions of new dollars sloshing around equity markets and not creating jobs. Applying the coefficient from a British study, the Fed’s $4 trillion intervention should have generated a roughly 6% gain in output. It didn’t.

QE’s detractors point out that central banks have expanded their balance-sheets by trillions of dollars, yet are still nurturing lackluster recoveries.

The results on inequality and low yields are equivocal at best. People holding financial assets have enjoyed 150% gains, thanks to QE (see chart). But, say the apologists, low yields have also helped people pay their debts. The reach for yield, which has pension funds investing in junk bonds, is justified if it prevents a “catastrophic” breakup of the Euro.


Overall, the collection of studies provides weak justification for such an extreme policy. The Fed has expanded its balance sheet fivefold, and the academics need a microscope to find the upside – plus, a raft of counterfactuals about how terrible sound money would have been.

We find The Economist’s title, “Early Retirement,” especially cynical. In the real world, our kids can’t find jobs, and the grandparents cannot retire. They will work until they die, because QE destroyed their savings.

See also: Of Flat Lines and Derp

Update: Here is a nice, impartial summary of the arguments for and against QE, with the current status. It is too basic for Jeremiah readers, but something to share with the kids. One editorial point – the author says “three problems,” and then lists four. The fifth would be that people with saving accounts are now enemies of the public good. German “strafzins” is best translated as penalty rate.


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Let Them Eat YouTube

Bloomberg has an entertaining article about how customized entertainment makes you better off, and why “entertainment goods” should be added to the GDP numbers.  Never mind that you can’t pay off your student loan, you have streaming video!

The increase in entertainment variety and convenience represents a challenge to the conventional wisdom that American living standards have stagnated

In Is U.S. Economic Growth Over? , Robert Gordon makes much the same point, but without the rose tint.  He writes that productivity gains from the Internet revolution had peaked by 2000.  Since then, we have “entertainment and communication devices that are smaller, smarter, and more capable, but do not fundamentally change labor productivity or the standard of living in the way that electric light, motor cars, or indoor plumbing changed it.”

Entertainment [does] not fundamentally change labor productivity or the standard of living

Bloomberg’s view reminds us of the national happiness index, another attempt to excuse failed policy by moving the goalposts.  Remember, our trade balance looks like this:


Writing in 2009, Jeremiah predicted that as living standards fell, we would find ways to get used to it.  In his vision, an impoverished America turns to yoga and whole grains – not mind numbing gadgets.  Huxley’s dystopia is winning.

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Bad Math Roundup

SowellDr. Thomas Sowell is cited here, debunking the “one percent” myth, and we have finally found a pop culture reference for the enduring class fallacy.  In the 1979 movie, Breaking Away, the townie played by Dennis Quaid laments that, while he is an aging loser – the college kids are forever young!

That’s right, the local college is populated by an enduring class of attractive, carefree kids, who are always aged 18 to 22.  It’s easy to see why he resents them.

Next up, we have this gloom and doom piece from the NBER.  The author lops 0.5% off American GDP growth because it accrues to – you guessed it – the one percent.  Said portion doesn’t count because it’s not going to real Americans.  Never mind the conventional socialist idea that GDP roams around loose, to be “captured” by the rich.  This is bad math because it voids his use of the historical figures.  The author must now back out tainted GDP from all his other calculations.

Finally, just to make three, we have Charles Hugh Smith’s excellent series on pooled risk in America.  In part two, he debunks the popular delusion that the state has an infinite capacity to mutualize risk – and by extension, debt.  No one should have such a delusion, though, because the population sharing the risk is the same population that is exposed.

The proper denomination for national risk, or national debt, is per capita.  America may be a large pool, but we have no more risk tolerance per capita than, say, Germany.  In any case, Jeremiah doubts that the spongers and enablers actually have this delusion.  They are just going to stuff their pockets until the dollar collapses.  Get it in yuan, boys.

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Want Fries With That?

Jeremiah is thrilled to see the June payrolls report almost to 200,000.  May was revised upward, too.  So, what is going on with GDP?  Recovering employment should mean recovering GDP.  That is, more people working ought to mean more production.  Here at Zero Hedge, the assertion is that the BLS is lying about the jobs situation.

Well, if you look at the breakdown in Table B, you will see continued weakness in goods producing jobs, and losses in manufacturing – what we old timers call “good jobs.”  Job gains in the service industry might mean accountants and engineers, but no – the leaders are:

  • Administrative and waste services (+38,500)
  • Food services and drinking places (+51,700)

Amusement and gambling did pretty well, too.  If you are a young person at the bottom of the skills ladder, this hiring is good news for you, but it’s not great for the overall health of the economy.  We need a certain number of people with good jobs to pay the taxes and support the government.

It’s really easy to bring in another bartender or waiter and instead of one guy, have two guys working half as much.

Also, if you are in one of these service jobs, you may not be working full time.  We have noticed a lot of new faces at the local eatery, and we suspect there is some truth to this theory that they are staffing up so that they can dodge Obamacare – by cutting your hours.

As an “unintended consequence,” this one is hard to excuse.  The French have had arbitrary labor laws, with the same negative results, for years now.  Congress should have seen this coming when they passed the law.

See also:  How to Control Health Costs

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David Frum’s Waterloo

Congratulations to David Frum on his induction as a centrist.  He was sacked from his job at the American Enterprise Institute after criticizing Republicans for their role in the health care debacle.  Among other things, Mr. Frum says that Republicans erred in supporting employer-paid health care.

The Economist agrees, calling employer-paid health care a “bug” and an “accident.”  The Obama plan now enforces the bug, while doing nothing to contain costs.  According to this analysis, health care costs will rise to 20% of GDP by 2017.

Both the right and the left have long argued that putting business at the heart of the health-care system is a bug.

Now, America has the worst of both worlds.  Employers pay, with the plans taxed “selectively” for political advantage.  Jeremiah wrote, last October, that the honest solution is to end the tax deduction entirely.  This industry is not going to shape up until individual Americans are holding the checkbook.

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