Monday, December 5, 2016


Part I of the comparison between the Great Recession versus the Great Depression dealt with the emotional after effects of a financial collapse for a country like the U.S.  Herein I will only discuss the economic effects of the Great Recession on labor wages in the Upper Midwest.  This region is often called the Rust Belt, a term that became popular back in the 1980s.  So the labor problems of the Rust Belt have been around for a long time and have little to do with the Great Recession.  Nonetheless, the angry "white" Midwestern workers came to a boil in the recent election.  So why now?

 Every so often on Morning Joe, they have Steve Rattner give the status of some economic condition.  I thought Rattner presented two very compelling charts on the December 1, 2016 show that I have captured related to some of the angry feelings in the Midwest towards government.  Of course one should notice in the figure that the steep decline in Rust Belt manufacturing jobs started well before the Great Recession, mostly during the administration of George W. Bush, with a particularly steep drop ("waterfall") going into the Great Recession.   Such improvement as there has been was during the administration of Barak Obama.  Note that with the Obama administration the decline in manufacturing workforce has stopped and has even started a slow recovery in all the states except Pennsylvania.  You would think that workers would be happy that the decline (the bleeding so to speak) has not only stopped, but actually has slowly reversed in most states.  However, we  are told they aren't happy at all, so the reason for their anger must be sought elsewhere, such as the emotional effects of the Great Recession (see Part 1).  but before we get too hysterical about this, please recall that Trump won these states by very small margins Michigan by less than 11,000 votes out of more than 4.8 million votes cast and Wisconsin by 27,200 out of 2.9 million votes cast and for Pennsylvania won by 46,530 votes out of nearly 6.9 million votes cast.), so maybe many people were grateful for the progress after all.

Below is some of the text of Rattner's presentation (in italics):

(Click on figure to enlarge)

The role that white working class voters played in Trump’s election is now widely accepted; this chart provides graphic back up for how tough it has been for these workers over nearly two decades and how minimal the much vaunted renaissance of manufacturing has been. ...  Pennsylvania, once the home of the steel industry, has had no recovery in manufacturing jobs since the financial crisis.
Only Michigan – thanks to the success of the auto industry – has shown a meaningful rebound in manufacturing jobs and even Michigan’s total is still just two-thirds of what it was at the peak.
It’s important to recognize that not all these job losses are due to trade or globalization; improving efficiency also played a role in the lower need for workers (although those productivity gains have been minimal in the last several years.)*

(Click on figure to enlarge)

Note in the above figure, that although jobs have had a rebound in Michigan, the decline in wages that started long before the Great Recession has continued since, though at a slower pace.  One can see some cause for anger there.  Something like "It is nice to see my friends get back to work, but not at the expense of my wages."

In contrast,  although Pennsykvania has not seen a rise in manufacturing employment, those remaining have seen the largest increase in wages of the five states and actually are even back to 2003 levels.  One might wonder why manufacturing workers in Pennsylvania are so angry as the current workforce has bounced back in wages.

Certainly a part of the problem for the slow wage recovery was lack of a meaningful infrastructure program as construction (among other opccupations) was very hard hit by the Great Recession.

Steve Ratner continues:

While attention mostly is focused on jobs, it’s important to recognize that falling wages are also a problem – and nothing in Trump’s announcement will address that problem, which is directly a result of trade and globalization, not automation [Emphasis added.  See comment below]. In this category, Michigan – again because of the strong presence of the auto industry – has been the hardest hit, with average hourly wages in manufacturing falling from $28 per hour in 2003 to just over $20 per hour at present. (These numbers are all adjusted for inflation.)*

Though I have great appreciation for him, Rattner is certainly wrong that automation has had nothing to do with the decline of wages by workers.  The wages actually must be below the costs of automation as well as achieve some sort of parity with the wages of the lowest cost countries.**  Low wages in many countries, however, are tempered by the costs of shipping and some other factors like the generally higher price of natural gas in foreign countries.  Thus the cost of selling something in the US. made in China may be more equivalent to, let's say, $8/hr  (as a guess) rather than the $4/hr cost of labor in China, still a large difference.

I get the feeling that the manufacturing worker has been thrashing around for some years, trying to seek a political solution to the decline in manufacturing in the Rust Belt.  In 2008, these people not only changed the "coach" (the president) but also the "team"  (the Senate and two years earlier the House).  Now in 2016, they changed the coach again, but left the team essentially in place.  We should remember that the President-elect won these Rust Belt states by very small margins, suggestiong to me a high level of confusion.  In the 2016 election they actually chose a n"coach" who was in confilct, not only with most of the Democratic Party but the Republican Party establishment as well but left the "team" essentially in place.  We will see how that works out.

(Click on figure to enlarge)

Adding to their problems is that the American worker has been convinced to disarm and abandon unions.  The decline in wages has paralleled the decline in unions.***   While unions may not be very effective, they are workers only hope in dealing with management.


Saturday, December 3, 2016


People will forget what you said.  People will forget what you did.  But people will never forget how you made them feel.
Attributed to Maya Angelou

Bad times are shaping the temperament of a new rising generation around the world today just as surely as the original Great Depression did back then.

For America to experience a financial collapse is very dangerous, particularly from the political hangover.  In the Great Depression, many people turned to Communism (Soviet style).  fortunately this never took root enough to become a reality.

In the Great Recession, people turned to and elected an unqualified candidate who catered to their basest instincts.  The consequences of this are still to be determined, good or bad.

"The labor market feels very good," Mark Zandi, chief economist at Moody's Analytics, told CNBC. "Mr. Trump is inheriting a very strong economy.  (  The problem is that the people don't feel it and are very angry.

Just how bad was the Great Recession compared to the Great Depression?

For instance, the Dow Jones Industrial Average fell from its pre-recession peak of 14,164 in October 2007 to a low of 6,547 in March 2009. That’s a 54 percent decline in just under a year and a half.*

By comparison, in the 1920s, the decline in stock prices during the first year and a half was more modest -- about 45 percent below the pre-crash peak.
Eichengreen and O’Rourke also found the decline in world trade to be steeper, initially, during the 2008-2009 recession.
One of the reasons for the quicker decline in 2008-2009 stems from greater ties between the world’s economies and the refinement of financial technology. Both developments can spread economic problems more quickly and widely.*
On the other hand, the banking collapse in the Great Depression had a much more devastating effect than it did in the Great Recession.  You had deposits insured up to $100,000 and the Federal Government bailed out banks in the Great Recession, mainly by finding other banks to take over failing banks.

After Lehman Brothers fell, "the transmission of that collapse over to the ‘real economy’ -- soaring layoff rates, reduced hiring, and losses of investor and consumer confidence -- was astonishingly fast," added Gary Burtless, an economist with the Brookings Institution.
It took much longer for the Dow Jones to hit bottom in the 1920s -- three and a half years -- but by the time, the total fall was greater. By mid 1932, the Dow had lost 89 percent of its pre-crash value -- a far bigger loss, percentage-wise, than the 54 percent loss after the Great Recession.
Similarly, in mid 2009, both world equity prices and world trade had bottomed out and started heading consistently upward. That’s only about 10 to 15 months. [bolding and underlining added] During the Great Depression, both statistics hit bottom after about 35 months, a period two to three times longer.*
In 1929, the annual unemployment rate was 3.2 percent. By 1933, it had peaked at 24.9 percent -- a rise of 21.7 percentage points, or an average of 6.8 percentage points per year.
By contrast, unemployment rose from a low in May 2007 of 4.4 percent to a high of 10.0 percent in October 2009. That’s a rise of 5.6 percentage points, or 2.2 percentage points per year. That’s just one-third of the average annual increase during the Great Depression.
It’s a similar story for gross domestic product. Adjusting for inflation and population, GDP barely suffered a downward blip during the Great Recession, but during the Great Depression, GDP took a whopping eight years to return to its 1929 level.*
A big reason for the faster turnaround starting in 2009 is the impact of the economic stimulus bill, "which averted a continuing freefall … even though it was not big enough to bring about a robust recovery," said Robert S. McElvaine, a Millsaps College historian

Also see Wikipedia.**

So while overall the economic effects of the Great Recession were not as bad as the Great Depression because of people's insured bank accounts, the bank rescue, and a small "stimulus program,"  the political fallout from the Great Recession may be worse because of the election of an unqualified Republican President, and a continuation of the Republican Senate and House.  In effect, all the electorate did was change the coach.  How much worse, or possibly even better, things will be is yet to be determined, but at least they are given a strong economy to begin with.  Let's hope they don't screw it up.


Friday, December 2, 2016


This blog has been following the economy and has repeatedly found a disconnect between what politicians and the news media tell us (the economy is poor) and what the facts are (the economy is good and looks to get better).  There are other, more qualified analysts, who come to the same conclusion.

"The labor market feels very good," Mark Zandi, chief economist at Moody's Analytics, told CNBC. "Mr. Trump is inheriting a very strong economy." * 

The national unemployment rate fell to 4.6 percent in November, the Labor Department said Friday. 
Every month on "Jobs Friday," the Bureau of Labor Statistics releases a bunch of data, each point of which provides its own unique perspective on an aspect of the nation's employment situation. Economists look past the official unemployment rate — that 4.6 percent figure, also known as the "U-3" rate — to other metrics that give their own nuanced view of jobs in the country.**
One of those figures is called the U-6 rate, which has a broader definition of unemployment than the U-3 does. In November, that figure fell two-tenths of a point, to 9.3 percent.**
(Click on figure to enlarge.  The figure in interactive in the refernece)

 U-3 is the  total unemployed  as a percentage of the total work force and is the official unemployment rate.   At 4.3 % the official rate has returned to the pre-Great Recession levels.

U-6 adds discouraged workers and marginally attached workers plus those working part-time for economic reasons. Unemployment rate for U-6 was 9.3 in November 2016, well below the high of 17.1% in late 2009-early 2010, but still above the average of 2006-2007 that was more like 8.2%.**

Wages continue their climb.  Average hourly wages were at $2.69/hr (red in fgure) up considerably from $2.17 in the June report  In the June report average weekly wages (blue in figure) were also $2.17 in June, the same as the average weekly wages, and similar at $2.28/hr in November.**

(Click on figure to enlarge. The figure is interactive in the reference)

Note that prior to the Great Recession, hourly wages hit a high of $3.66/hr and $3.86/hr for weekly wages.  At the depth of the Great Rececession, the figure for weekly wages had fallen to an increase of only $0.41/hr!  The pattern for hourly ages was quite different, in fact hitting a peak during the Great Recession before starting to decline near to the current values.

The climb in hourly wages relative to weekly wages suggests that the rise in hourly wages is a result of increase in lower skilled jobs. 

Monday, November 28, 2016


Friday, November 25, 2016

CNBC has published an interesting article by Louise Yamada on interest rates with time.*  It seems kind of peculiar to me that a low in interest rates occurs every 30-40 yrs and the bottom interest rate is lower than the last one.  In contrast although the first three peaks in interest rates were also lower than the previous one for the first three cycles, the 1981 high blew things out of the water with its high rates over 10%.

Yamada says:
History shows the only place for interest rates to go from here is higher — according to veteran technical analyst Louise Yamada.
"The early stage of a bull market can be accompanied by the initial rising rate cycle," she said. "It isn't until you get to about 5 percent that you start having problems."*

(Click on figure to enlarge)


Sunday, November 27, 2016


The WSJ has an interesting article showing a decline in the percentage of adults that own businesses.*  Some excerpts from this article are shown in italics and included is a figure showing the decline.  Please see the full article for more discussion.  This piece complements an earlier item on the decline in new start-ups that started as early as 1997.**

Curiously, the decline in ownership started in the late 1990s during the bubble for reasons that are not discussed in the article.   There was a small recovery during the first decade of this century.   The recovery was snuffed out by the Great Recession when there was another steep decline beginning in 2008 lasting until 2012 when the decline sort of leveled off.

 A new report from the Ewing Marion Kauffman Foundation,  a Kansas City, Mo., nonprofit, tracks the number, survival and density of small businesses (those with fewer than 50 employees) across the U.S. While small companies are making it past their fifth year at a near-record rate, business ownership and firm growth remain historically low, possible reflections of declining dynamism across the U.S. economy.
 In the group’s latest index, for example, just over six out of every 100 adults owned a business in the U.S. That’s down from about 7.8 two decades earlier, highlighting a drop in entrepreneurship over that time.

(Click on figure to enlarge)

At the same time, the smallest businesses—with one to four employees—made up 53.1% of small businesses, up from 49.5%. That suggests that small firms are less likely to see breakout growth.
For men and women who start businesses, they’re sticking around longer. The survival rate—firms that make it at least five years—hit a low of 42.9% in 2011 during the lingering aftermath of the recession. The most recent index posted a three-decade high of 48.7%.


Thursday, November 24, 2016


Most Presidents monetize their presidency  but after they are president.  Ronald Reagan famously gave four speeches in Japan for $2 million (  The Clinton's too became wealthy for giving speeches for fees up to $500,000 for Bill.

President-Elect Donald Trump, however, plans to monetize his time in the White House and we had better either get used to it or eventually impeach him.  Of course, he is a big exception to those running for president all along in that he never released any of his taxes to the voters.

The latest word from President-Elect Donald Trump is that he plans to run his business after he is sworn in as President.  Yes, we will have a part-time president who will meld his business interests into his duties as president.  In spite of what he says, our President-elect will have severe conflict of interest problems and even constitutional violations though he claims a President can't have conflict of interest.*

Although the President, like all other federal officers and employees, is prohibited from receiving 
personal gifts from foreign governments and foreign officials without the consent of Congress 
(U.S. Const., art. I, §9, cl. 8), the President is generally free to accept unsolicited personal gifts 
from the American public.  Most of the restrictions on federal officials accepting gifts from “prohibited sources” (those doing business with, seeking action from, or regulated by one’s agency) are not applicable to the President of the United States (5 C.F.R. §2635.204(j)), although the President may not solicit gifts from such sources. The President, in a similar manner as other federal officials, may also receive unrestricted gifts from relatives and gifts that are given on the basis of personal friendship. When personal gifts accepted by the President or his immediatefamily exceed a certain amount, those gifts are required to be publicly disclosed in financial disclosure reports filed annually by the President. 5 U.S.C. app., §§101(f)(1), 102(a)(2). The President remains subject to the bribery and illegal gratuities law which prohibits the receipt of a gift or of anything of value when that receipt, or the agreement to receive such thing of value, is connected in some way to the performance (or nonperformance) of an official act. *

Trump may already be in congressional violation of soliciting gifts as he is already hawking his Washington, D.C. hotel to foreign diplomats:
About 100 foreign diplomats, from Brazil to Turkey, gathered at the Trump International Hotel this week to sip Trump-branded champagne, dine on sliders and hear a sales pitch about the U.S. president-elect’s newest hotel.**
Some attendees won raffle prizes — among them overnight stays at other Trump properties around the world — allowing them to become better acquainted with the business holdings of the new commander in chief.**

Trump also has already talked about his business partner in Turkey with the President of Turkey Erdogan,***

Of course Trump's daughter  Evanka sitting in with the meetings with the Japanese Pirme-Minister doesn't look good, nor does her hawking her mother's $11,800 duamond and gold bracelet for sale by her company don't look good either.****


Wednesday, November 23, 2016


At this point, it is not clear that Trump is proposing a real infrastructure program but intends to give utilities and other companies a big tax break for building what they already plan to do.  But let's say in the end it will be a real infrastructure program of improving bridges, road, airports, train stations, the electrical grid, and others.

The way it goes is this.  It takes time to ramp up the program so if congress is smart thay will start a large infrastrurtue program slowly (this would be unusual, but let's suppose.)  So lets say, they start the first year with , um, $25 billion.

So an interagency committee is formed to select which infrastruture programs to do first.  This is important because, although it is supposed to be a multiyear program, congress may abandon it after the first year (you never know).  The interagency committee forms a working group to select and prioritize projects.  The working group gathers together and starts to prioritize when someone gets a bright idea.  They point out that the Americian Society of Civil Engineers already has a list and why don't we just go with that?  Everyone agrees and the meeting is disbanded.

So they publish the list and the next thing you know, the Senator from, say, Mississippi says,"What do you mean that Mississippi is number 293 on the list?  We have projects as important as anybody. " Well, he is a powerful Senator (Mississippi happens to be a ward of the U.S. government) so something from Mississippi  is made number 9 on the list.  Of course the Senator from the state that has just been dropped from the top 10 objects to losing out.  So the interagency group discusses if they could handle 11 projects to start.  It is agreed that with overtime, enough person power can be focussed on 11 projects and that is that.  Only the Senator  and a representative from Arkansas object to being only 173 on the list.  And so it goes.  Finally the system is overloaded so they are given authority to make some new hires.

The hiring has to be done quickly.  The Senators from Mississippi and Arkansas say they has an idea for some people. As time is passing, some people are hurredly hired that the organizations spend the next 20 yrs trying to get rid of.

Finally contracts are being prepared.  The approval process is slow but accomplished and contracts are let.  The low bid is an organization that can't do the job so papers have to be prepared explaining why the low bid isn't being selected.  A fight ensures and the contract may have to be relet.  Finally a company is selected and some company higher on the list complains that they should have been selected so the whole thing starts over.  But a contract is finally issued (with luck) and ready to go about half way through the fiscal year.  The approved company then has to ramp up their operation which takes more time.  With maybe about 3/4ths of the fiscal year gone, the company finally starts to do some work.

Consider a program called Superfund Program initiated in 1980 that deal with cleaning up commercially contaminated sites with various chemicals and other toxic materials in the U.S.  To get a feel for what I am writing about, see the Superfund program in just the state of New Jersey (
Here is a quote from Wikipedia about the Superfund today:
Approximately 70 percent of Superfund cleanup activities historically have been paid for by parties responsible (PRPs) for the cleanup of contamination. The exceptions occur when the responsible party either cannot be found or is unable to pay for the cleanup. Until the mid-1990s, most of the funding came from a tax on the petroleum and chemical industries, reflecting the polluter pays principle, but since 2001, most of the funding for cleanups of hazardous waste sites has come from taxpayers. Despite the name, the program has suffered from under-funding, and Superfund cleanups have decreased to a mere 8 in 2014. As a result, EPA will typically negotiate consent orders with PRPs to study sites and develop cleanup alternatives, subject to EPA oversight and approval of all such activities.