A little Economics this and that …
Posted: December 27, 2010 Filed under: Catfood Commission, Civil Liberties, Civil Rights, The Media SUCKS, U.S. Economy, U.S. Politics, Voter Ignorance, We are so F'd, WE TOLD THEM SO | Tags: AFL-CIO, Chris Hedges, commodity prices, Paul Krugman, wealth gap 44 CommentsI thought I’d post a little end of the year economics stuff just in case you need a nap!!
A nifty chart to show we are SO f'd!!!
I’ve been writing for around a year about a possible bubble in commodity prices but a definite increases in base commodity prices coming shortly. Now, this doesn’t necessarily mean it will involve an increase in over all inflation because these price increases are mostly in the already volatile areas of food and energy which are considered outside the ‘core’ inflation measures because they tend to bump and shuffle a lot. This is from Paul Krugman in his column: “The Finite World”.
Oil is back above $90 a barrel. Copper and cotton have hit record highs. Wheat and corn prices are way up. Over all, world commodity prices have risen by a quarter in the past six months.
Is it speculation run amok? Is it the result of excessive money creation, a harbinger of runaway inflation just around the corner? No and no.
What the commodity markets are telling us is that we’re living in a finite world, in which the rapid growth of emerging economies is placing pressure on limited supplies of raw materials, pushing up their prices. And America is, for the most part, just a bystander in this story.
Krugman goes on to explain how booms in the economies of developing nations is causing increased Demand for certain commodities. This simply means the price will go up when the supply is limited for some reason or another. Some times the supply is slow to increase because of production considerations or inventory considerations. Other times the supply is limited just because there is a finite amount of it on the planet. Some of this may also be due to the market taking in the impact of those just passed subsidies to corn-based ethanol which take farm land out of food/other crop production and funneling it to corn production, This decreases the supply of wheat, soybeans, and cotton too.
And those supplies aren’t keeping pace. Conventional oil production has been flat for four years; in that sense, at least, peak oil has arrived. True, alternative sources, like oil from Canada’s tar sands, have continued to grow. But these alternative sources come at relatively high cost, both monetary and environmental.
Also, over the past year, extreme weather — especially severe heat and drought in some important agricultural regions — played an important role in driving up food prices. And, yes, there’s every reason to believe that climate change is making such weather episodes more common.
Krugman concludes with the important question of what does this mean for us?
So what are the implications of the recent rise in commodity prices? It is, as I said, a sign that we’re living in a finite world, one in which resource constraints are becoming increasingly binding. This won’t bring an end to economic growth, let alone a descent into Mad Max-style collapse. It will require that we gradually change the way we live, adapting our economy and our lifestyles to the reality of more expensive resources.
But that’s for the future. Right now, rising commodity prices are basically the result of global recovery. They have no bearing, one way or another, on U.S. monetary policy. For this is a global story; at a fundamental level, it’s not about us.
Yes. The world economy is “not about us” any more. So many other countries now have huge viable economies that we are no long the center of the Supply and Demand world like we were post World War 2. This is definitely going to take some adjusting on our part and some ignoring of the rhetoric of the right on our country’s role in the world. We can not continue to maintain the idea of American Exceptionalism in its current form given that we are really no longer exceptional in many, many ways. That adaptive behavior does not diminish our historical role as the original provider of Democracy-based Constitutions and Civil Liberties or our military role in freeing many countries from monarchy and fascism in both world wars.
We can continue to pour our resources and the lives of our young into asserting ourselves as the global military police in attempt to maintain our delusion of being ‘special’, or we can put our resources into assuring ourselves and our children a comfortable niche in the world with a respected voice at a big table. The Right Wing has to understand that we don’t own the table anymore. If only our politicians would grow up enough to make the best choice for us instead of deluding us into thinking that we’ll ever see post World War 2 America again.
I want to couple this with something I got in a tweet from the AFL-CIO: ‘U.S. Workers Earned Less in 2009 Than in 2008’. This goes along with the fact that many things we could finance or buy twenty to thirty years ago will elude us today.
New data show America’s workers earned less in 2009 than in 2008, according to the Bureau of Labor Statistics. Compensation was down by 3.2 percent in 2009 with declines in construction and manufacturing fueling the plunge. St. Louis County, the hardest hit, saw a decline of 11.5 percent.
For those lucky enough to have a job, average pay increased by 1.2 percent. But overall income inequality is now at its worst since 1928. As the chart by the Economic Policy Institute (EPI) shows here, between 1979 and 2005, households at the bottom fifth of the income scale have seen an average, inflation-adjusted income growth of just $200. The $200 figure does not represent an average annual increase in income, but rather an increase of $200 over the entire 26-year period. By contrast, a small number of households at the top 0.1% of the income scale saw average income growth of almost $6 million over that same period.
In addition, the “wealth gap,” which differs from the income gap because it measures total net worth, is now 225 times greater between the richest 1 percent and the median family net worth.
Lest we forget, corporations are sitting on $1.93 trillion as of Sept. 30—up from $1.8 trillion at the end of June–and not using some of that money pot to create jobs.
The bottom is falling out for the middle classes in this country. Income inequality is as bad as it was in 1928 during the peak of the Robber Baron age. There is no way we’ll have a shot at seeing ‘morning again in America’–even one concocted from a senile man’s political rhetoric–without a strong middle class. This is one of the reasons that I highly recommend your holiday reading included Chris Hedges ‘Death of the Liberal Class’. Here’s Sanctuary TV’s you tube on his explanation the “genesis of the book”. Wonk mentioned some of his thesis in her excellent post yesterday.
The ‘lies of omission’ that we see in the Main Stream Media today makes this imperative that we have conversations outside of channels that are controlled by for-profit corporations. Listen in to the video at around 2:45.
Most of the images that are disseminated around our culture are skillfully put together and are disseminated by for profit corporations so that we are made to …or we confuse … how we are made to feel with knowledge. Which is precisely how ended up with Barrack Obama.
This is especially true with things economic. I had a conversation with my Republican Dad yesterday which ended up with him accusing me of sounding just like the Democrats after the Great Depression. (I will wear that badge proudly, thank you.) I was trying to explain to him how Social Security isn’t going bankrupt, that the overages are invested in T-bonds and T-bills and that isn’t the same as massive borrowing from the fund by the federal government, and that if social security can’t rely on the interest and their capital invested in T-bonds or T-bills in the future, we will undoubtedly have a much greater problem than having smaller social security checks. (My guess is that we would be in the middle of a government collapse similar to what happened to the USSR in the 1980s.) Dad kept accusing me of living in the theoretical world of economics–me, an empirical economist–when I kept telling him it was just a matter of debits and credits which are anything but theoretical economics.
The deal is this if you read studies, and follow the debits and the credits. The threat to social security isn’t coming from its cash flows. It’s coming from the politicians in Washington, D.C. and it appears that it will shortly be led by the aforementioned Barrack Obama. Some of these people seem intent on collapsing our Republic and its democratic roots. These Bircher-like attacks on the New Deal are real attacks on the ways the government–through New Deal Policies, Laws, and Agenciess- levels the economic playing field for small businesses and working class people. This is the same way that Bircher-like attacks on Civil Rights attacks the ways the government levels the legal playing field for minorities and women.
Again, I’m drawn to the quote most attributed to the late great Senator Patrick Monihan. People and politicians are entitled to their opinions but not the facts. The problem is that fact manufacturing–or labeling political diatribes by media monsters like Glenn Beck–appears to be rampant in the very outlet that provides the life blood of our democracy.
This maldescriptions of unemployment, the role and purpose and very political independence of the Fed are more features of this misinformation campaign. I’m going to further reference Paul Krugman and his economist yogini–yup, there’s at least two of us out there–wife Robin Wells here. They co-authored an excellent essay on “Where do We Go from Here” in The New York Review of Books. This part comes after their joint call to the Democratic congress critterz–left standing from the midterms elections–to fight.
First, it would mean fighting on economic issues. While it is extremely unlikely that Democrats can undertake any further fiscal stimulus, they can put Republicans on the spot, resisting calls for austerity and making the case, repeatedly, that the GOP is standing in the way of necessary action. The fight over renewal of unemployment benefits should be only the start. Democrats can also denounce Republican attacks on the Federal Reserve and defend the Fed’s independence. They can resist attempts to turn back health care reform, on both humanitarian and long-term budgeting grounds, as health care reform is the critical factor in reining in the long-term budget deficit.
Health Care Reform Inc. could be one more rung on the ladder for the middle class on the ladder back to upwards mobility. Instead of repealing the now unpopular bill, we should be working actively to get the right things into its corporate enabling shell. That would be–at minimum–a Public Option. We have to get them to fight on Economic issues. Also, we desperately need to deal with Fannie and Freddie. These organizations used to be the way to home ownership for working class Americans. I stand proudly as an example in that regard. My little kathouse in the bayou in the middle of a solid urban hood shines as a beacon of what those things were supposed to do before they started manufacturing loans to the derivatives market.
And there are steps that the White House could take without congressional approval. Democrats could pressure the administration to fix the inexcusable mess at the HAMP (mortgage modification) program—a program whose Kafkaesque complexity has in many cases made matters so bad for home owners that it has triggered the foreclosures it was supposed to avoid. In addition, mortgage relief would benefit the wider economy. Furthermore, the scope of mortgage relief could be made much wider if Fannie Mae and Freddie Mac were used to guarantee mortgage refinancing. Other proposals go even further: for example, that Fannie and Freddie engineer reductions in mortgage principals. All of this could be done, conceivably, by executive order.
What we are seeing is a brick by brick removal in the walls that support the social net built during the New Deal that helped America become the thing it was during the 1950, 1960s and 1970s. Yes, we helped many countries get rid of Nazis and Fascist and this did make us some what exceptional at the time, but ushering in the very policies and attitudes of fascism does not make us the least bit exceptional now. It weakens the very people that make for a vibrant Democracy. Also, given that the Wikileaks information has been the soul source recently of unmanufactured news and opinion passed off as fact, it also gives us a glance at why the rest of the planet has ceased to see the US as exceptional too.
To paraphrase the words of Common Dreams and Margaret Flowers: We Must Resist. Okay, so this essay was a little Political Economy and not just economics. You awake?
update:
I get to update this post with a link to one of the more influential ‘liberal’ economist who is also writing on the changes in the Political Economy at Project Syndicate. Here’s something from Jeffrey D. Sachs writing on ‘America’s Political Class Struggle’. You may recall that both Krugman and Sachs were called to the Obama woodshed a few weeks ago and told to get on board with the McConnell-Obama tax cuts.
America is on a collision course with itself. This month’s deal between President Barack Obama and the Republicans in Congress to extend the tax cuts initiated a decade ago by President George W. Bush is being hailed as the start of a new bipartisan consensus. I believe, instead, that it is a false truce in what will become a pitched battle for the soul of American politics.
As in many countries, conflicts over public morality and national strategy come down to questions of money. In the United States, this is truer than ever. The US is running an annual budget deficit of around $1 trillion, which may widen further as a result of the new tax agreement. This level of annual borrowing is far too high for comfort. It must be cut, but how?
The problem is America’s corrupted politics and loss of civic morality. One political party, the Republicans, stands for little except tax cuts, which they place above any other goal. The Democrats have a bit wider set of interests, including support for health care, education, training, and infrastructure. But, like the Republicans, the Democrats, too, are keen to shower tax cuts on their major campaign contributors, predominantly rich Americans.
The result is a dangerous paradox. The US budget deficit is enormous and unsustainable. The poor are squeezed by cuts in social programs and a weak job market. One in eight Americans depends on Food Stamps to eat. Yet, despite these circumstances, one political party wants to gut tax revenues altogether, and the other is easily dragged along, against its better instincts, out of concern for keeping its rich contributors happy.
This tax-cutting frenzy comes, incredibly, after three decades of elite fiscal rule in the US that has favored the rich and powerful. Since Ronald Reagan became President in 1981, America’s budget system has been geared to supporting the accumulation of vast wealth at the top of the income distribution. Amazingly, the richest 1% of American households now has a higher net worth than the bottom 90%. The annual income of the richest 12,000 households is greater than that of the poorest 24 million households.
Please go read the rest of the article. I think this shows further evidence that Obama didn’t placate liberal economists.
peej
Carissa
ecocatwoman
mablue2
peggysue22
quixote
skydancingguestblogger
Mona (aka Wonk the Vote)
Sky Dancing 
I’ve been having conversations in my little burg but the impression I get is most people “get” it, they just have no confidence that even as they protest ,that the government crafted for them by our founders, will listen. There seems to be broad bipartisan agreement that BOTH sides are playing us and neither party has solutions.
Also, BB and I were wondering what it would take to disrupt things. It seems like the teaparty protests did get on the radar a little, but the nuttier parts of that movement wound up being the story. That’s usually the same thing that happens with the hippy protests like those over the WTO. There’s a hypothesis out there now–put forth by Assange–that you have to disrupt their processes here and there with information overloads, etc. More like target disrupting the bank consolidation and focusing on that and hoping it carries over to other things. For example, the BP oil spill has disrupted the endless unsafe drilling for a bit.
It’s funny. The world seems upside down when it’s the conservative contingent that seems more likely to protest what’s going on instead of the “hippies.” And yet it is the conservative contingent that seems the most riled up in my neck of the woods. I spent quite a bit of time correcting misrepresentation of things such as government run care or the idea that this is a “Christian” nation. Ironically enough, my SAHM status seems to give some of the guys pause. They usually assume I’m conservative till I start talking. I’ve even had one of the old fellas declare that I was a real pistol and if I weren’t already married he’d snap me up. Totally made me laugh because we’d likely be plotting each other’s assasination within a week of living together.
I really think most of these folks that call themselves conservatives these days really don’t know what that means. There was such a successful messing up of the conservative and liberal philosophies since the Reagan years that I’m convinced all those labels are meaningless for all intents these days. That and that stupid progressive label. They’ve all been conveniently redefined so that they excoriate rather than elucidate.
oh, and I just updated the article to include something from jeffrey sachs
… this information should be used on self proclaimed red neck conservatives (my dad’s in that number). It points to the real issue.
My ideas are respected even if they are different because I am not a mushy want to have it all ways type and because I respect people even if I do disagree with them on issues. Me and the gentlemen I am discussing will never agree on an issue like gay marriage. That being said he concedes my argument that watching a gay pride parade does not make one anymore an expert on gay people then watching a War documentary on the history channel would make one an expert on being a Vietnam war vet. People are far too complex to put them all in neat little boxes.
By the way, YOUR version made much more sense then Mr Krugman’s version. It was much more cohesive on where we stand in relation to a global economy. We are an economic empire on the decline while other economies are starting to develop and wield clout.
Well Krugman’s at an Ivy League university, writes for the NYTimes, has a big publishing deal, and is part of the ‘success’ class. I’m down here in the bayou with the rest of the gekkos, gators, and frogs and poor people.
I am one who finds Paul Krugman very articulate and understandable. I appreciate his work very much. I keep reading snarky things about him, from the left wing, and I don’t understand it. So I guess I’ll just keep reading him, to the enrichment of my understanding.
Enjoyed your interaction with your father. So is your sister a Republican? Also – is he happy with SS and Medicare? In a way, it might be a good thing that the Republicans have the house as we can respond with rationale to their pablum. Look for Paul Ryan of Wisconsin to be the annointed speaker in economic and business terms. I think Barney Frank is going to have a field day with Spencer Baucus. Poor Baucus, he has fire brands like Henserling to deal with
Our real problem is that we have to motivate the Democrats to stand up and fight. We some how have ot strike some fear in the Democrats. Build on the Blanch Lincoln example. Love is desirable, but fear is best. I have given up on trying to educate the population as the main stream media is to busy preserving their access to power and rarely contradicts power.
As I mentioned in a previous post. My Senator Debbie Stabbenow is taking over for Blanch Lincoln who was part of the Derivatives regulation scene. Stabenow is up for re- election and probably is vulnerable to logic attacks. Writing to her is time wasting. As things develop, I am going to send information to local weekend news programs where she is interviewed.
I believe both my sister and brother in law are republican but they’re like I used to be … the old Rockefeller type Republicans left over from the Eisenhower days. My dad has paid into social security from day one. It’s something he reminds me over and over. He just gets ticked about the ‘borrowing’ thing. I don’t think he’d tear down social security or medicare frankly. He’s not an unreasonable Republican like the theocratic ones are. Like I said, our family is the dying breed kind of Republican. We were Republicans because of the old Southern Democratic Dixiecrats and their outrageous racism and such. My uncle was buddies with Wendell Willkie who went on to ‘collaborate’ with Roosevelt. We were that kind of Republican family.
I think Krugman sticks to analytics and is ready to comment on R or D if he has a differenet opinion. I view Mankiew as Krugmans counterpart in the publishing world. However I kind of think of him as a lazy professor who pops up once in a while with some relevant points. I thik Krugman views him as a occasional temporary distraction.
What I do find interesting is that Bernanke (Dept Chair) got Krugman into Prinston. I do not view them as cut from the same cloth.
Economists are kind’ve an odd lot. I think it’s because we’re economists first and then have our political views. It makes us less ideological than some because we’re trained to look at cause and effect and facts and models in a way that’s different from most. Bernanke and Mankiw are Republicans but that doesn’t blind them from getting economic theory. Same with the scientists that argue that Evolution and being Christian can be compatible. The scientific method, facts, data, hypotheses, theories, etc. rule our way of thinking.
Commodities! FYI. A SILVER Quarter is now worth upwards of 5 bucks.
You know, my husband just mentioned this to me yesterday…
yes, interesting huh? Silver is very important in electronics, medicine. Has many uses. Seems JP Morgan has been controlling that market for a very long time. So it is believed. Dunno. And a silver dime? Well it’s worth about 2 dollars now. Sterling silver, is less pure but still about 92% silver. So all that junk silver piles up.
I note that Krugman forgot to mention the weather? Droughts, etc. have a big affect on commodity prices too. Lots of traders watch the weather. Like the drought that appears to be forming in the midwest.
oops He did mention the weather. Whew.
yup, that’s why food usually isn’t included in the core prices, lots of natural things can influence price changes
Here ya go song!
from 12/14/10
I don’t think Greenspan let any facts get in his way when Ayn Rand dogma applied.
Yea. His head did get a little full of that.
Ugh,Greenspan
Overrated and egomaniacal….even after managing to get housing all wrong the guy still can’t shut up.
Oh, another interesting tidbit to go along with the Krugman thing on copper prices:
dated 12/06/10
And they say the markets are efficient (Rolls eyes)
That’s what you get when you set up monopolies. Price Manipulation!!!
Now dak they didn’t specify who the market was efficient for!
I mean having virtually no competition is an extremely efficient way to ensure that you maximize the value of a resource. It’s not a very ethical or fair way to deal with consumers but all is fair in love and profitability.
Yup, just your basic vanilla, old, classical microeconomics model that still works!!! it’s a repeat of the old bunker hunt silver days and we’ve got an SEC and an AG that are dysfunctional. Wonder if any one will actually do anything? I can’t see Chile complaining since this only ups their sovereign wealth at the moment.
Bubble bubble boil and trouble……I wonder how long before the incredibly efficient market creates the next bubble. Not long if JP Morgan is any indication.
yeah, and my crystal ball said they’d have to do it with a commodity so if they didn’t manage to confuse me, they must be getting pretty obvious these days
Efficient….Effluent….
I have been reading up on toxic waste and treatment plants, and I just realized that I have been reading the word efficient as effluent. I think I need to take a break…
First, it would mean fighting on economic issues
Obumbles fight? Who knew Dak was a comedienne?!?! Too funny!! I needed that laugh!!!
I get a lot of cops, that happen to mostly be republican, coming into my job for coffee and a place to sit for awhile, and one of the best things about these economic posts is that I can regurgitate these findings and arguments and change minds. So far, I have 3 of the regular cops hoping for a Hillary resurgence. We talked about what was in this post last week. Now I have the info to finish that discussion. As always, THANK YOU DAK!!!
Hillary 2012
That was a big ol’ IFF!!!
Take care and have a great new year!!!
David Dayen has an interesting post on pensions. I suspect we’ll be fighting a two prong war. I know that our state is requiring it’s state employees to contribute 5% now and they are only getting a 3% pay increase. They got a 2% bonus this year since we finished in the black. Additionally the state is deferring payment on those pensions. I don’t know that I’d be ripe to fund something that the state could then steal.
Dak, I just saw this on HNN and was wondering what you thought of it. Since it is the Financial Times I cannot see the full article. But it is written by Simon Schama, we had to read a few of his books in History-Theory class. History News Network Simon Schama: An America lost in fantasy must recover its dream
Thx! I’ll check it out!
Sounds like the short-bus driving (they call it an SUV), historic tree destroying (replaced with nasty palm trees) yuppy puppies that moved in next to me!!!
love it!!
also this:
I saw that little declaration there…about NY. I thought it was funny.
I always doubted that there was a god who would or could do nasty things to humanity to indicate His displeasure. And then I found out about yuppies.
Well down in the comments the idea surfaces that not all of the recent run up in commodity prices is due to growing demand by ex-US economies, as was posited by Krugman and quoted at length in the original post.
Certainly hedgies and other big players have been speculating in commodities, but plenty of small fish investors, especially those soured on the stock market’s shenanigans, have been buying up commodity ETFs for some time now in an effort to get something better than their near zero interest return on US treasuries. So these folk are part of the ‘bubble’ too.
Similarly, for the past year radio political talk shows-both right and left have the same adverts- have had advertisers pitching gold investments, and the two page spreads in newspapers have appeared around the country to announce traveling road shows eager to buy your gold jewelry and ‘scrap’ gold.
Even my Thanksgiving Day dinner had some friends commenting on their sales of long held US silver coinage at current record prices.
Krugman’s on definitely on the econ side of the house.
The idea that the prices for commodities have gone up as much as they have simply because of developing nation demand is silly. I remember people saying the same thing when the prices for everything were going up around the time just before the housing bubble popped.
If you actually look at emerging markets, they have been buying a lot of things. Increases in gas prices have reflected increased Demand in China for petroleum. It’s actually not silly. You can check their GDP and see the increase in their purchases. China is buying a ton of raw materials right now that aren’t in its own bag of tricks. They’re a huge country, with lots of people, and lots of buying power.
Sure, that’ll cause an upward trend, but copper prices are up 30% in the last two months.
China’s use of copper has been spiking since 2005. It just screams bubble, along with the stratospheric rises in gold.
And, of course, “metals” aren’t just metals. Copper has uses in electronics and other light manufacturing. Steel, on the other hand, is mostly used for heavy manufacturing. I’m still looking for info on total use of steel in China, but I suspect that they are still long on light manufacturing for foreign markets, and short on heavy industry for domestic consumption. In other words, a lot of their demand for metals is in order to export goods to western countries, and what we think is an upward trend is just their export industries coming back online.
I’m getting the latest direction of trade stats shortly so I’ll nave the answer to that next month.
This seems to be to rich for my blood. I guess I am going to have to park the car in the garage, and get on Horse to go to town.