A little Economics this and that …

I 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.