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3/21/19   Return to Economic Library

Index

Wellbeing Government    Income Inequality  Stagnate Wages   

Measuring Inflation  Employment         

 Macro GDP Usefulness  Distributing GDP   Growing GDP

Post WW 2 US Competitive Adjustments

Post WW 2 International Economic Adjustments

Micro Most Westerners Live Better Than Ever

College Investing

Economic History   Post WW 2     Modern Western

One-Picture Economics

Government Spending Helps and Hurts

 

Source: What You Should Know About

 

 

Tax Gap Cheats Doubles the Deficit

When Will Income Inequality Affects Growth

 

Are Wages Stagnate? A Politicians Dream!
Which Data Set to Get Most Votes?

 

More Earned Higher Incomes
 Fewer Earned Low Income


Will Inflation Come Back

Inflation is About  the Value of Money

Leaving Gold Standard Changed Variability and Value of Money

 

Employment

 

Increasing Minimum Wages Job Loss is Temporary

Source: Canary in the coal mine? NYC small businesses struggle to survive $15 minimum wage hike: ‘They’re shutting down’
 

visualcapitalist

 


GDP Usefulness   
Big Political Economy Question #1

 

Distributing GDP    Big Political Economy Question #2

 

 

Growing GDP

Education Can Be a Poor Economic Investment

 

Post WW 2     

Post WW 2 US Competitive Adjustments

U.S. Economic Normality
1945 -2015

Bailouts
Safety Net
 Profits vs. Labor
Wellbeing
page 2

New Normal #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.

New Normal #2 Oil Embargos and Competition Began Wage Stagnation
Japan's competitive manufacturing sector accelerated causing stagnate Rust Belt wages and employment. Why? Japan got lucky when gas efficient small green cars required change and U.S. manufacturing responded by protected profits with less quality improving capital investment. Unions protected current workers by accepting a two-tier wage system minimizing new worker wages. Feeling pressure Japan built modern U.S. plants. See How the U.S. Squandered Its Steel Superiority  and The End of the International Liberal Order?  1hr: 28 min

New Normal #3 Financial Instability from Philosophical Change
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.
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.
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
1. 2007-8 Financial Crisis was tamed by the Federal Reserve. 2. 2008-9 Recession was tamed by monetary and fiscal policy.
3. 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
4. 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

China 2012       
Germany 2012         
Saudi Arabia 2009   
Japan 2011     
Russia 2012
4. Finance/Housing Easy Money Bubbles

$214B
208B
150B
119B
81B

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. Think 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. Think China and Russia.
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. Think Mercantilism.
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. See 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 Part 2 Financial Bailout, Economic Recovery, Poverty Stuck at 15%, Income Stagnates and Wellbeing Grows 12/18/15

 

Financial Bailouts, Economic Recovery, Poverty Stuck at 15%, Profit vs. Labor, Wellbeing Grows, Asian Competition

 New Normal # 4 U.S. 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  Use pdf for color printing.

 

 

 

 

 

Great Recession Cost Were High But Growth Cured Budget Problems

Economic Cost of Great Recession Estimated at 12.8 TrillionSome 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

Status of TARP Programs, October 2008 to September 2014
See Treasury Financial Analysis of Great Recession in Charts.

More Shenanigans Coming?
London Whale Costs JP Morgan Chase $6 billion in 2012 as slow Dood Frank law did not take effect until 2015

New Normal # 5 Poverty Stuck at 15% Some believe the 15.5% poverty rate should be lowered. 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 Beating Labor 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?

New Normal #7
Wellbeing Increased Continually

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 Recession.  Source 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

New Normal # 8 Asian Competition

 

Post WW2 Competitive Adjustments

Return to  Global Economic Growth and the Rise of Populism 

1. The Good

Cold War to 1980
AD > AS

Full Employment Goal =
 Inflation, Debtors Paradise

US Credit Expansion
equates AD with AS.

2. The Bad

Neoliberal Economic Reset 1980-2008
AS > AD

Business Responded to Inflation
Led to Deflation. a Creditors Paradise
 

3. The Ugly

Reactions to Neoliberalism 2008-

Sustained Deflation
Created Winners-Losers
Globalization Failed
Pickett's R > G
Back to Equilibrium with Increased Income Inequality

  Structural Causes  

to 1980

Politics

Strong Unions
RestrictedLabor Markets
Central Government Strong
Central Bank Weak
Finance Weak

Economics
Sustained Inflation
Wages Got All-Time High
Capital Got All-Time Low
Real Debt Decreases
Inequality Low
 

 

1980-2008

Politics

Weak Unions
Open Flexible
Globalized Labor Markets

Government Less
Economic Responsibility
Central Bank More
Economic Responsibility
Finance Strong

Economics
Secular Deflation
Labor Got All-Time Low
Capital Got All-Time High
Inequality High

2008-

Politics
Lack of Bank Regulation

High Leverage

Short-Term Reserves Were in
Euros When Dollar Were Required

Academic Economist Ignored Economic Effects of Financial
Market

Economics

Government Helped
Top and Bottom Creating Middle Income Envy 
 

Modern Western

Most Westerners Live Better Than Ever
WW 1 Began Mass Wealth Accumulation k
 

 

College Investing

Choosing a College and Major

 

 

 



1 p1 page printing           1 page color printing
 
 

 

Economic History: Modern Western Economic History

 

 

Economic History: Western Civilization
 

 

 

 

Developmental Characteristics

1500 Begins 

A Fight for Individual

 Property Rights
 

1800 Conflict  

Human Rights vs. Property Rights

 

 

Philosophy Humanism stresses individualism opposes Christian Church penance Science joins Humanism and Christianity as most dominate  philosophical influences
Key Feature Free Will opposes Predestination as a lifestyle option   First Revolution 2nd Industrial Revolution   Free Trade and Globalization
Innovators Erasmus influenced Luther T_More defines utopian socialism Alexander Graham Bell     Mark Zuckerberg
Key Inventions Guttenberg Press3 Financial Revolution Steam Engine Steel, Chemicals, Electricity    Transistor,  Internet, Genetic Engineering
Economic System Feudalism Mercantilism /Bullionism. Laissez-faire Capitalism

managed currency/credit

Democratic Socialism   Free Market Capitalism

Economic Theory

Manorialism had Lords with legal economic power supported financially from his landholdings with legal obligatory contributions of the peasantry.

Tariffs  increased powerful, helped private  "infant" industries. Trade was limited with industrial specialization providing growth.

Private property, individual liberty

backed by a constitutional
Democracy.
Property/Contract Rights
eventually yield to human
Rights/Liberties
See Lochner v. NY
Free Markets Rule
GATT Globalism
WTO aid Agriculture
Nationalistic
Backlash
Surplus Agriculture + Gold +Luxuries   Diseases Cured, Basic Necessities Preventive Medicine Retirement
Oligarchs

Church + Monarchy +Guilds +Traders + Merchants

+ Corporations Wealthy Few + Politicians + Interest Groups + Social Media moguls
Control Method

Eternity in Hell or Heaven+ Physical punishment

+ Economic Rewards   + Political Rewards  + Self Interest
Work Structure Wool Weaver Households Cotton Factory Workers Unionized Manufacturing Workers  
Taxpayers

Surfs + Farmers + Guilds  +Bankers +Importers

   + Corporations  

+ Individuals

Waste

+ Military Spending 

    + Education Spending
Oligarchs Provided

Safety

 + Infrastructure   + Sanitation + Health + R&D + Universal Education

+ Education + Security

Oligarchs

Anarchy

  + Trade Unions   + Government Replace Unions  

+Social Networks

Key Asset Land + Gold Natural Resources + Transportation  
Energy Source

Humans Animals, Water, Wind

  + Steam 

+ Electricity

+ Oil + Atom      + Nature
Economic Catalyst

Colonialism

England's Hegemony Begins   English Cotton mfgt avoided tool monopoly constraints allowing innovation based on science
Key Exports

Spices Tea Silk from Orient

  Wool, cotton

Industrial Revolution

  + Nature
Key Exporters

India, China

  + England

+ US + Germany