#1 Rising Income

#2 Foreign Competition, Wage Stagnation

#3 Failing Manufacturing, Less Regulation

#4 Financial Bailouts and Economic Recovery

#5 Poverty Rate Stuck

# 6 Profit Growth Beats Wage Growth

#7 Wellbeing Continuing Growing

# 8 Asian Competition

#9 A New Western Normality Coming?

Please Share 1/10/20

#1 Rising Income
WW 2 generated savings, pent-up demand and few foreign few competitors generated 25 years of high profits higher wages and cooperative unions. As if Watergate and the Cold War were not enough, the oil cartel OPEC had the unity to succeeded with a 1973-74 oil embargo. The embargo was targeted at nations perceived as supporting Israel during the recent Yom Kippur War. Trouble was brewing.

Normality ended when Carter appointee FED Chairman Volker found higher interest rates were  not enough so he  lowered commercial bank reserves. This quickly  pushed the Federal Funds Rate to 20%. Banks would not loan. Two recessions followed. The first cost Carter reelection and the second, though severe, was over so Reagan was reelected. The End of the International Liberal Order?  1hr: 28 min video


#2 Increased Foreign Competition Began 1970's Wage Stagnation
High Oil prices pushed Japan into more valued added exports like automobiles, machinery and computers. This competition caused a stagnate Rust Belt with lower wages and eventually lower employment. Japan's manufacturers got lucky from increased demand for gas efficient small green cars with catalytic converters. Detroit  protected profit by seeking tariff  protection. Investment needed to  lower cost and increase product quality was ignored. Auto union leaders protected their positions. Current worker protected existing jobs and salaries by accepting a two-tier wage system.  It minimized the need for new workers who would receive lower wages for a similar jobs. Feeling political pressure Japan built many modern U.S. plants often in the nonunion southern states offering the highest tax incentives.
see  How the U.S. Squandered Its Steel Superiority


  #3 1980's Failing Manufacturing and Less Financial Regulation
Events Causing Financial Instability Causes Great Recession
1980's U.S. and England Returned to Conservative Lax Business Regulation
because increased regulation and increased welfare provisions had upset many voters. Think Great Society and lax derivative regulation which result in major increases hostile leveraged buyouts plus and over-investing in Real estate caused. They caused  the Savings and Loan Crisis. Think Michael Milken Scandal, Keating Five results from poor Alan Greenspan advise.
1980's Major Investments Banks Went Public creating a need to balance client needs with equity needs. Think expansion of financial industry's share of GDP.
1980's Accounting Standards Declined as accountancy firms struggled to balance commitments to audit standards with the desire to grow their consultancy business. Think off-balance-sheet items and
Arthur Anderson Scandal.
1980's Home Equity Loans Increased Current Consumption and Lowered Savings as they replaced equity building home improvement loans. Think many not prepared for retirement.
1983 Reverse Mortgages Approved for FHA loans. Think less retirement savings.
1986 Big Bang
deregulates London's financial services industry, other will follow.
1999 Gramm–Leach–Bliley Act Increased Systemic Financial Risk once limited by the Glass-Steagall Great Depression Act. Initiated by Republicans it was signed by President Clinton.
Think financial industry expansion. See Five Bad Bush/Clinton Policies

2004 Uptick Short Rule of 1938 rescinded. Think stock market gambling.
2006 FASB requirement that housing assets be mark-to-market decreased financial system collateral. Action resulted from a 1991 Government Accountability Office investigation of the $160,000,000,000
savings and loan bailout. Think moral hazard.

From Financial Crisis to Recession to Great Recession to Recovery
Great Moderation preceded the Great Recession 2. 2007-8 Financial Crisis was tamed by the Federal Reserve. 3. 2008-9 Recession was tamed by both monetary and fiscal policy.
4. European financial instability and world-wide austerity slowed economic recovery and income growth for all but the very, very, very wealthy. Think top 1/10th of one-percent

5. Great Recession Recovery Has Varied Around the World

Understanding Balance Sheet Recessions
They are infrequent, severe, and long-lasting. Understanding them is necessary when judging society's efforts to manage The Great Recession. It is like understanding a doctor's attempt to relieve a headache requires knowing the level of difficulty. Was it a Migraine Headache? A balance sheet is caused by high levels of private sector debt. Assets must equal liabilities plus equity. If assets values like housing collateral fall below their associated debt, equity must make up the difference or insolvency results and debt must be repaid. Think 1837, 1873, 1890 & 1929 See Most Severe US Recessions.

Was Our Great Recession a Balance Sheet Recession?  Economist Paul Krugman feels the financial crisis ..."was one manifestation of a broader problem... associated with a "balance sheet recession." Economist Richard Koo wrote Japan's 1990- ? "Great Recession "was a "balance sheet recession."  


What Led To The Great Recession?

1. Free Market Capitalism Lowered Regulation.
2. Innovative Expanded Investment Banking.
3. Global Trade Imbalances
4. Finance/Housing Easy Money Bubbles



China 2012       
Germany 2012         
Saudi Arabia 2009   
Japan 2011     
Russia 2012



Great Recession Stages
from The Shifts and the Shocks by Martin Wolf

1. A more complex unstable financial/credits system
resulted in extreme optimism in good times and panic in bad times.
 derivatives, securitization, credit default swaps all managed by hedge funds.

2. Savings glut created as emerging countries lowered borrowing and increased trade surpluses after the 1997 Asian Debt Crisis made their foreign dollar dominate debt unsustainable. They expanded trade and kept personal consumption below economic growth. Less consumption and borrowing plus a trade surplus increased Dollar, Euro, and Yen reserves. Like the Petro Dollars in the 1980's this excess savings would be loaned for poor investments (housing).
Think savings from China and Russia and other re
3. Aggregate demand stagnated as trade surplus countries didn't spend. Germany's 2005 economic renewal was saved and Japan's private sector saved much more after their 1990's credit bubble exploded. Adding to the demand shortage were companies who maintained profit by decreasing capital investment spending despite historically low interest rates. Globalization and technology also helped them maintain profit as wage increases were limited to most valuable employees. State and local governments, especially those with underfunded pension systems, also cut expenditures.
4. Increased current account deficits by wealthy nations balanced world trade. Higher demand for foreign goods was made possible by massive central bank supported low interest loans. The FED's historic monetary expansion was made possible by continued low inflation caused by expanded Flat World competition and low oil prices. Innovative financing and lax financial regulation also fostered expanded financial asset demand. Think excess OPEC savings financed the 1970's Latin American Debt Crisis leading to Savings and Loan Crisis.
5. Real Estate and Stock bubbles came as expected from low long-term real interest rates.
New home buyers borrowed surplus savings and investors devoured growing unique debt securities created by an expanding finance industry promising insured difficult to understand almost guaranteed financial instruments. Leverage rose dramatically. Fraud, near fraud and data manipulation exploded as mortgage servicers, banks, and the law firms broke the law to force people out of their homes. See Chain of Title and Brief History of Financial Bubbles.
6. Poor Crisis Management
by politicians as their economic advisors believed market capitalism would prevent serious recessions. The Great Moderation solidified this view. Possibility of new financial instrument contagion were not understood. When panic started, political, intellectual and bureaucratic leaders resisted quick action in areas that required cooperation. A US depression was avoided by FED, Treasury and Congressional efforts that were slowed by austerity. Iceland, Ireland, Greece, Spain and Portugal experienced economic depression.
See The Great Recession.
Bubbles Credit and Their Consequences to see FED analysis of trying to slow down a bubble.


  New Normal # 4 History of U.S. Financial Bailouts and Economic Recovery

Bailout History The $700 billion 2008 financial-sector rescue plan is the latest of many bailouts that go back to the Panic of 1792 when the federal government bailed out states over-burdened by their Revolutionary War Debt. Thereafter private banks and investment bankers took over financial bailouts until the Panic of 1907 when the economy was so big that even J.P. Morgan needed U.S. Treasury help. This led to the 1913 Federal Reserve System designed to be the lender of last resort.

Recently the 1987 Savings and Loan Crisis bailout cost about $160 billion. Other recent government private sector bailouts have included: 1970 Penn Central 1971 Lockheed 1980 Chrysler 1984 Continental Illinois 1991 Executive Life Insurance Company by states assessing other insurers and the 1998 Long-Term Capital Management bailout by commercial and investment banks.
See History of U.S. Government Bailouts. Think overcoming greed is difficult
U.S. does better than most! 12/28/15 

Great Recession Cost Was High
But Growth Cured Budget Problems

Economic Cost of Great Recession Estimated at 12.8 Trillion.
Some add home values loss but this is a reach since the housing bubble had inflated values. U.S. FED Profit of $100b in 2014 was up from $47b in 2009. The 2010-14 total was $ 420b.  Source
See Treasury Financial Analysis of Great Recession in Charts
Recession, Stagnation, and Monetary Policy EconTalk Podcast 1/9/17






New Normality #5 Poverty Rate Stuck at 15.5%. After  "...correcting the 2013 poverty rate for noncash food and housing  benefits, refundable tax credits, and the upward bias in the CPI-U ..."the rate drops from 14.5% to 4.8%. War on Poverty-Was It Lost Others believe it should be raised as it doesn't account for geographic and demographics differences. See Poverty Rates How Flawed Measure Drives Policy Other Data 1  Data 2 Think many use true but not necessarily appropriate data to foster their POLITICAL beliefs. Example: With our obesity problem how could anyone have believed that many went to bed hungry during the Great Recession. Calculation ignored food stamps and subsidized school lunches.


New Normal # 6
Profit Beats Wages

Twenty-first century war expenditures helped profit recover after a dot-com bubble recession, then crash with The Great Recession and then grow to new heights. US Companies have competed very well in a flat world using technology, outsourcing to Asia, Mexico...and by keeping wage increases low. Source Total compensation has done better although Obama Care gave companies an opportunity to again lower compensation. Source More Data 1 Data 2 Think Rust Belt then NAFTA and soon TPP?  See How Democratic Failed Workers 11 min Short Term vs. Long Term Returns 52 min


Editor's Note: Competition for US Investment dollars meant business located in US had to compete with developing countries whose R was greater than R from US located companies. Just as said competition lower US worker wages except the return on investment overseas avoided taxes and to some extent measuring of R.

  New Normality #7 Wellbeing Growth Continues
1. Society's continued stability has resulted in tremendous economic growth which is the key determinate of well-being. Public safety net, child safety, and adjusted poverty rate have all improved dramatically since the Gilded Age. Think economic continued economic distress in Russia, Europe, Japan and China.
2) Scientific achievements have continuously added to citizen well-being. Think cured diseases, smart phones, streaming audio-video, Gillette Stadium ... See Health Problems Solved.


3) Personal Income increased continuously if not always rapidly because nature and nurture improved the personal characteristics needed to enhance wellbeing. Think Russia, China, and Europe's really slow recovery from the Great RecessionSource Is The Country In Trouble, Will Stagnate Income Hurt Our Children and Recent Decades Ranked By Problems. see Crisis of Capitalism 11:10 video is an interesting Marxian view i.e. Bernie Sanders Return to page 1 Send thoughts to antonw@ix.netcom.com

Source #1     Source #2



New Normal # 8 Asian Competition

Automation Will Continue, What Will Displaced Workers Do?

Should We Encourage Apple to Assemble Onshore? How?



#9 A New Western Normality in the Making?

Prelude: The Power Grab Continues

Supreme Court as "Supreme Constitutional Authority"
Baker v. Carr  federal courts took control constitutionality of state redistricting plans.
Other 1960's Redistricting Decisions

Protecting Business
2010 Citizens United v. FEC protected  corporate interests in  election-spending regulations

I. Development of Illiberal Democracy   summarized from Francis Fukuyama: Democracy's Failure to Perform
     A. Causes
          1. Foreign Policy Failures of Developed Democracy enhanced by U.S. foreign policy failures i.e. Middle East  wars
          2. Non-Liberal Democracy success, especially China
          3. Poor Liberal Democracy Performance i.e. economic slowness, immigration, wealth accumulation
     B. Definitions, nominal
         1. States are a
 monopoly on a legitimate use of physical force.[105][106] [107 from Max Weber States are about Power!        
         2. Rule by Law: sovereignty sets the law i.e. China
         3. Rule of Law: sovereignty responsible to same laws as the governed. Laws limit power.
         4. Democratic Accountability requires free multiple political parties with guarantee substantive accounting and a
             government that serves the entire population, not just the elite.
    C. Modern Political System
         1. A modern miracle that generate tremendous power limited by the rule of law and is democratically accountable
         2. Patrimonial state: rulers own political system, resources and distribute gain production Who You Know
3. Neo-Illiberal States: look like a democracy, limited representation, leaders follow the money

  D. U.S. Failures at State Building
1. Focus: building a Liberal Democracy
         2. Required focus: moving from Patrimonial State to Modern Political System
             a. Iraq and Afghanistan: got the liberal democracy but did not move from a patriarchal to modern state
                 Both state moved to
Oligarchy where a few wealthy people form a  Plutocracy.
                 Neither can protect citizens and provide services to much of the population.
             b. Ukraine: got a liberal democracy from the Orange Revolution of 2004-5, but could not keep it as a
                 second revolution needed to avoid a strong connection to Russia.
             c. India: Very democratic but can't progress to modern state as it can't fix serious problems
                 Elected strong leader but he to is failing.
             d. Greece: got a democracy in 1974 but developed into a Clientelism where every election brings a
                 new set of party connected bureaucratic. Strong unions kept jobs for previous bureaucrats.
                 Eventually, she had seven times the bureaucrats per person as did England.
                 Problem: Greece does not want to change.


II. Three main forces are blowing up global politics

Source  by

Summary from author/editor Walter Antoniotti      antonw@ix.netcom.co

A Trio of independent disruptions
Opposition to immigrants, globalization, and establishment leaders/institutions created disruptions.
America's 1990 dissatisfaction recently
spread to Europe causing two years of volatile pubic fury.
This spread
compounds to an unpredictable degree the possible disruption to
Europe and Western Culture.

Status and Social Cultural Apprehensions contributed to these disruptions. 
This caused  effected groups to lash out in a tribal like response.
An end to a post WWII US led moderation is seem by some to be causing
Great power conflict returning to early Cold War levels
2  Declining world wide economic prosperity, including the west

All three disruptions could last years Axion reported here, here and here.
Optimistic leaders thought and even hoped Trump, Brexit, or something else
would help moderate our disruptions.

Disruption modification related to Trump, and Brexit, power immigrants are difficult.
1. No opposing stability force seems forthcoming
An aging and shrinking developed world's population reinforces disruptive forces.
AI is increasing worker employment anxiety.
3. Climate change is increasing leader constitution.

III. Big Economics Stories over the last decade compiled bu author/editor Walter Antoniotti

Technological advancement, by way of big data and artificial intelligence, has made it easier for companies
to closely monitor workers’ productivity and to break jobs into tasks so that contract work now encompasses
third of the workforce excluding many from benefits, training, and a career ladder typically offered full-time employees.

Low interest rates have left the Fed backed into a corner David Wessel
While they makes it possible for the U.S. government to shoulder a larger federal debt and reduces cost of borrowing
for everything from home mortgages to public investments that could raise living standards in the future, they also
makes the Federal Reserve’s job tougher: With interest rates so much closer to zero than has been the case in the past,
the Fed has less room to cut rates to fight the next recession.

Robbing the poor to give to the rich Aaron Klein
The explosion of tax free credit card rewards available only to the well healed, to the incredible costs of a slow
payment system born by those working paycheck to paycheck in overdraft fees, to the rise of payday loans.

The cost of the free market was high for some  Isabel Sawhill
The longest economic recovery on record did not result in public investments, a reduced national debt,
or help for of those left behind—Trump's “the forgotten Americans.”  Some economists question the
free market philosophy leading to poorly designed tax cuts, and ever-growing inequality.

The Affordable Care Act sharply reduced the uninsured Christen Linke Young, Matthew Fiedler
The uninsured rate has fallen by more than 40 percent with almost entirely due to provisions in the ACA that created subsidies,
expanded Medicaid, young adults to remain on a parent’s plan through age 26, and law’s now-repealed individual mandate.



Growth in health care spending was unusually low C. Young, M. Fiedler
From 2010 through 2018, health care spending rose  from 17.3 percent to 17.7 percent of economy activity
even with a large expansion in health insurance coverage.

Taxing the rich has taken center stage Christen Linke Young William Gale
Our tax system is less progressive. The 400 richest Americans owned 0.93 percent of wealth in 1982, rising to 3.26 percent in 2018;
and the top 1 percent received 7.4 percent of after-tax, after-transfer income in 1979 versus 12.5 percent of income in 2018.
The top 1 percent paid 35% percent of their income in taxes in 1979 compared to 34% percent in 2013.

Proposals to raise taxes on the well-to-do include taxing wealth directly, closing income tax loopholes,
and taxing capital gains as they accrue were too radical to seriously discuss 10 years ago.

Dismal news on life expectancy Louise Sheiner
Life expectancy,  fueled by increases in drug overdoses, alcoholism, and suicides among working. Americans began falling in 2014.
Widespread adoption of prescription Opioid pain relievers and “deaths of despair” due to increased stress and low opportunity were the cause.
Life expectancy across income levels has been widening sharply. [Those with the gold, live.]


Will school and no work becoming the norm for American teens Lauren Bauer
From 2000 to 2018, the labor force participation rate of 16- to 24-year-olds declined 10.2 percentage points during the academic year because of  increasing school enrollment, a decreasing propensity to juggle work and school, and spending more time on education-related activities. This  time spent on education eventually contributes to more working when completing their education.

The promised productivity surge has not materialized Martin Neil Baily
Productivity growth  has been very slow in recent years. Non-farm business sector recently grew at 1.4 percent .
Business investment has also been weak.

Demographics became a headwind for US economic activity Stephanie Aaronson
The aging of the baby boomers has put downward pressure on labor force participation, causing a  reduction in the productive capacity.
This has reduced labor market fluidity and reduced business formation. But the demographic headwinds facing the US go beyond aging baby boomers.
Fertility rates have fallen dramatically over the past decade, means slower labor force growth and fewer workers per retiree,
both of which will make it more difficult for the US to meet its fiscal responsibilities.

A New Normal is in the Making?

'America First' has won, by Robert Kagan at NYT.

Saving liberal democracy from the extremes, by the FT's Martin Wolf