Better Late Than Never? WaPo Runs Story On Horrid US Economy —– A Week After The Election

 

Well, we didn’t expect them to criticize Barry’s economic performance while he was running, did we?

I would give WaPo the benefit of doubt because the article is based on a CBO report that came out after the election, but that would imply WaPo was oblivious of our poor economic performance since Barry Zero got elected. 

The WaPo article offers this CBO graphic……

image

In other words, this is the worst recession the US has had since the last communist was president, over 80 years ago.  Here’s the meat and potatoes of the article….

Growth has been 9 percent below what was seen in past recoveries on average in its first three years. …..The U.S. economy just isn’t as good at growing as it used to be.

Potential GDP is the measure of what the economy is capable of producing if almost all of the people who want jobs are able to get one and almost all its machines and buildings were humming at their potential. While it has grown consistently through modern U.S. history (we can thank a growing population and steadily improving technology for that), it doesn’t always grow at the same rate. In periods when baby boomers were reaching their working years and women were entering the workforce in large numbers, the rate at which potential GDP rose was very high, over 4 percent at times, by the CBO’s reckoning.

I suppose I should explain a couple of things here.  Yes, population growth rate is a factor in raw GDP growth.  Technological advances are another factor.  One part is easy to incorporate into what should be our economic performance, the other is a bit more difficult.  But, we can use a couple of things to understand where we should be, if all things are equal.  For the purposes today, I’ll use GDP as a euphemism for wealth growth.  It isn’t necessarily so, but it will suffice, today. 

If nothing changes, ie. population, technology, equipment performance, etc…. then economic performance would be a sine wave with a flat trend.  I’ll use the WFT app to illustrate……..

image

Now, this is important, so pay attention.  If one factors in population growth, in order to maintain the same amount of wealth per person, the GDP needs to increase at the rate of population growth. The sine wave, for populations that grow, must have at least the same linear incline, else, in real terms, the economy is stagnant or contracting.  So, for the US, in order to simply maintain wealth compared to where we were, we must see a GDP growth at about 1% annually.  No problem, right?  We’re at 6%.  But, the GDP growth is relative from where you were.  Look at the start spot.  This isn’t an appropriate way to look at it.  Let’s see if we can find where we should be compared to where we were.  Oh, here we are, from the same CBO report.  (pdf)

image

Now, recall, simply to maintain wealth, we have to grow at 1%.  The start point here, illustrated by the red line (I drew) is 4 years ago.  What this means is that even only considering maintenance of wealth considering only population growth, the US is still in the recession because our incline is less than our population growth. 

There are many other factors involved in what normal economic growth should look like.  For most of the last half of last century, the US has outperformed the rest of the world economically.  But, how as the world performed?  What would an average economic performance look like on a graph?

As demonstrated, over and over again, a great proxy for economic growth is CO2 emissions.  While global atmospheric CO2 levels have many, many factors, some which can’t be quantified, we can get a good approximation of what economic growth should look like in a modern society.  Averaged annually, this is what economic growth should look like in order to only keep pace with the rest of the world. 

image

We’re not even close. 

As mentioned earlier, technology improvements is another factor in what our economic performance should look like.  It’s much more difficult to quantify, but, again, we do have a proxy for this. 

Moore’s law is the observation that over the history of computing hardware, the number of transistors on integrated circuits doubles approximately every two years. The period often quoted as “18 months” is due to Intel executive David House, who predicted that period for a doubling in chip performance (being a combination of the effect of more transistors and their being faster).

The law is named after Intel co-founder Gordon E. Moore, who described the trend in his 1965 paper.  The paper noted that the number of components in integrated circuits had doubled every year from the invention of the integrated circuit in 1958 until 1965 and predicted that the trend would continue “for at least ten years”. His prediction has proven to be uncannily accurate

image

Today, more than ever, technological advancements are dependent upon the observation of Moore’s law. 

Average economic growth should be = population growth rate + rate of technological advancement, averaged. 

We are nowhere near where we should be.  We are still behind in the simple terms of economic growth relative to population growth.  We haven’t even come close to the growth we should see in terms of tech advancement.  And that, my friends, is only to keep pace with the rest of the world. 

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24 Responses to Better Late Than Never? WaPo Runs Story On Horrid US Economy —– A Week After The Election

  1. DirkH says:

    A word about Moore’s Law(s):
    Moore-type laws only pop into existence in information technologies. An observation by Ray Kurzweil. That means, once you have transformed a problem into one that can be approached with the means of information technology, you can get exponential growth. The exponent varies from technology to technology. The doubling of hardrive capacity happened faster than the doubling of transistors on a chip, for instance – the exponent was different.

    Battery technology for instance is by now NOT an information technology, neither are solar cells. You frequently hear the proponents of solar power and electric vehicles talk about the inevitable benefits of Moore’s Law. But it doesn’t really happen; batteries are plain old lumps of material.

    Similarly, the price for solar panels is determined by advances in manufacturing technology and economies of scale – a doubling of panel output leads to 20% price reduction in that market – NOT a Moore’s Law but what one calls an experience curve.

    How can one turn a technology into an information technology to get the benefits of a Moore-type law? Well, in the case of storage, it was obviously the switch from analog to digital storage that did the trick. What does that mean for batteries or solar panels? I don’t know yet but the first guy who finds out has a good stab at becoming a billionaire.

    • suyts says:

      Well, that’s true. Batteries are essentially a lump of material. I don’t believe Moore’s law applies only to IT. But, is rather, a general observation of tech advancement. Not all things advance at the same time. The auto industry, for instance, had great improvements early on, but then leveled out. Later, more improvements came to be, again. Perhaps it would be better to incorporate the word “process” into the statement.

      When considering specifics such as batteries, it may be better to view them in the general term of “energy storage”. It doesn’t have to come in the form of a lump of material. And harnessing energy from the sun doesn’t necessarily have to come in the traditional view of solar panels.

      • DirkH says:

        “It doesn’t have to come in the form of a lump of material.”

        In all batteries, you have one atom (or ion) for one electron. So that’s the material you don’t get around.
        Alternatively you can use chemical storage, hydrocarbons or so, and that’s “good enough” for what we currently run; so synthesize them, Methane synthesis e.g., but you end up with an ICE again or a gas turbine. I’d be happy with a gas turbine. A fuel cell would be more elegant but not much progress in 100 years… Storing hydrogen is a bitch and running hydrocarbons through a fuel cell ruins the electrodes.

        Other ideas? Get rid of the material entirely – store a field. Gets more esoteric here; how does one avoid synchrotron radiation losses… How much energy can one store in a metastable plasma vortex, and what does one have to do to stabilize it over longer time?

        Difficult to get rid of the material…

        • kelly liddle says:

          Dirk
          Well I actually have a few shares in some company that makes fuel cells (yes dependant on government for success) Getting a potential of efficiency of 85% if including water heating seems pretty good to me. The manufacturing is done in Germany and some in China I think. The reason it makes sense to me is because unlike solar or wind this will take strain off power networks and is baseload or variable baseload. It is a gamble I know but could pay off well if it can make a profit in the future. http://www.cfcl.com.au/about/ Germany I think is the main customer and also manufacturer tax breaks included I think.

        • DirkH says:

          It’s unclear to me how long they last with hydrocarbon fuel. There’s also Bloom Energy, Google allegedly bought some boxes from them, I think they also use ceramic high temperature fuel cells.

          Usually the carbon ruins the cells. Lifetime of Molten carbonate fuel cells is still abysmal.

        • kelly liddle says:

          Dirk
          I did have a look at the Bloom website and they seem to be offering basically the same product but on a large scale. With Ceramic Fuel Cells I was able to find one of the test runs of a unit and after about 500 days the efficiency went from 60% to 50% which is quite a large decline. It will come down to price in the end and how much a unit can be built for and the fuel cell stacks changed. I know my investment is either I do very well or lose the lot hence the small investment.

        • cdquarles says:

          Not just difficult, impossible, without changes in the material you can use. When you talk chemistry, you are dealing with bulk by definition. That will not change. Synthesis of new materials (not chemical elements solely) from quantum mechanics is possible; but like pharmaceuticals, you’ll go through hundreds or thousands of candidates before you find one better than what we use now. Math => Physics -> Chemistry -> Biology -> Economics.

      • suyts says:

        Well, yes, one still has to have something tangible. But, then, as you noted, we’re not getting to the billion dollar question.

      • Jim Masterson says:

        Thanks to cell phone technology, battery technology is advancing. If you have one tech area advancing (cell phones), then it may help other related areas (batteries). It’s-the-innovative-mind-looking-to-gain-a-profit effect. The top-down, government mandate approach rarely (as in never) works, but it’s impossible to get statists to acknowledge the failure. They just keep on passing mandates and sometimes those mandates appear to work, but the true cost is never brought to light (by statists).

        Jim

  2. DirkH says:

    Production of hydrogen from Methane via catalysts might be an option to run a fuel cell.
    Slideshow:

    Click to access J_K_Norskov.pdf

    Not ready for prime time though.

    • suyts says:

      Yeh, I think hydrogen at some point in time will be a large part of our energy mix. In what form, we can’t be certain, yet.

      • cdquarles says:

        Hydrogen is already in the mix, in the form of hydrocarbons. Straight hydrogen is uneconomic and is likely to be so for a very long time. Fuel cells have the same limits that batteries do in terms of redox potential. The only thing a fuel cell brings to the table is the ability to continuously feed in fresh reactants.

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  4. David says:

    humm?, How much of our GDP growth is the result of Goverment spending, verses private sector growth? (This would be particularly interesting if one were to subtract goverment funds recieved and reported by the priviate sector through goverment contracts) How much did the priviate sector grow sans any goverment contracts?

    • suyts says:

      I haven’t put pen to paper on that. But, suffice it to say, the private sector hasn’t done much since Zero assumed office.

    • philjourdan says:

      Wrong question. Wapo has bad data. It does not account for the real inflation rate. There has been almost no growth in the Obama recovery.

    • cdquarles says:

      None by definition at best, negative at worse. Government has to take from the rest of us first so it simply moves economic activity from one area to another area or from one point in time to another; but it does not inherently increase the area under the curve, so to speak.

  5. David says:

    Yes, I agree, and would be curious to see the numbers. One reason I think inflation has not resulted to the degree one may think from all the money creation, is that much of that money has simply gone into the black hole of debt, and also to barely maintaing a far to large federal and state goverment. I still do not know which force will likely win the inflation, deflation battle, As mean salary is not rising, and family income is apparently falling, I just do not seee the dollars produced in the money supply charts getting into the hands of the people very well. Maybe Ben needs to get a real helicopter.

    • suyts says:

      It’s easy…… if the economy ever takes off, then inflation will get us. If it doesn’t, then we go back the other way, with inflation still looming, waiting on the economy to move. Much of the newly printed capital goes toward maintaining debt. This is why it doesn’t go anywhere.

      • cdquarles says:

        Under current economic conditions, prices and wages should be falling. That they are not doing so as much as the supply/demand situation says they should, means that there is a major inflation going on. The inflation isn’t visible, but it is there.

  6. David says:

    It is not easy for me, and something I wrestle with.

    Thinking…. Inflation? deflation….? Demand Pull….. Cost push….. Velocity of Money…..Quantity of Money…..Money supply…Credit…how do they all affect the millions of economic engines that make up the GDP.

    Cost Push…..So commodities, in the form of things we “need”, food, oil, metals etc, are often world markets traded in dollars. As such, if the dollar devalues RELATIVE to other currencies, cost push inflation occurs. Thinking…; so we can look at “money” as the fuel used in the economic engines. Cost push inflation of this form is the octane value of the fuel, so in this instance we are going to a lower octane, the engines run slower as the fuel does less work.

    Velocity of Money…how many times a given dollar exchanges hands over a given period of time. If you and I have $100 each and, in one years time, I sell you a product for $100 and you sell me a different product for $100, we have $200 of GDP, yet if we do this ten times during the year this creates $1,000 of GDP. If our economy consists of 100 people doing this, then demand pull inflation occurs, as more people demand the same items at the same time. This is not a product of diluting the fuel or lower octane, this is a product of more fuel being put into the same engine at the same time, so the engine is less efficient. However, when more people demand a particular item, and velocity speeds up in that direction, then the market builds more of that item, or more engines, and efficiency of the fuel increases back to its normal use.

    So the velocity of money can affect and leverage the economy dramatically. The inexpensive (Interest rates) and easy credit policy dramatically speeded the velocity of money. So in this case our magic fuel obeys the conservation of energy laws in that even though it has been used, its form has not changed, and it can be used again. So, in this case, over a given period of time, the same fuel is reused. So velocity of money can initially be inflationary, yet if left alone it will return to its former efficiency as more engines are built.

    Quantity of Money… So, if somehow we give those 100 people more dollars, then this clearly creates inflation, IF that money-fuel is spent driving the engines “GDP” increases, but if that fuel is simply indiscriminately universally poured into all ready running engines, it is inflationary as the fuel is simply being wasted.

    Credit? Credit is magic mind stuff, that allows engines to run now, with fuel from the future. Credit is built in deflationary fuel consumption.

    My concern is that the velocity of money is slowing dramatically, and permanently. Permanent is a relative term of course, but I am thinking of several decades here. Banks are extremely unlikely (despite some rececent changes, to go back to the ninja type loans, and this in itself will slow down the velocity of money. Consumer patterns may well be changed for generations if we enter a severe depression or even recession, so demand pull will likely stay lower. This combination of sane lending and sane spending is being forced into the system as a result of past excess and extreme debt. This I do not see going away for a long time.

    The debt trap is enormous. Fuel created, quantitive easing, flows to the past engines which already ran on magic debt fuel.. So trillions can be created, but that fuel must be spent on engines already built and running, and on engines which already ran. (The cost of running those engines must be paid) However the trillions are not going into creating new engines. The home loan crisis, the pension crisis, the student loan bubble, Medicare and social security debt, debt financed government programs of every flavor, and finally interest on all this debt, all of the above is deflationary, grit grime and resistance in the engine causing fuel to go to waste heat, instead of driving the engine.

    • DirkH says:

      According to Peter Schiff about 10% of US GDP is generated by Bernanke’s quantitaive easing. That money is given to banks who multiply it by fractional reserve banking. They use the money to buy everything; US debt, stocks, whatever.

      They give the US debt as collateral to the Fed in exchange for more new money.

      If Bernanke were to stop quantitaive easing, US GDP would drop by 10% instantly. It’s now an obvious pyramid scheme. China is scrambling for the exit. Japan will go down with the US as they keep on buying US debt.

      People are seeking alternatives to the USD. When they have found them, the Dollar will collapse.

      • suyts says:

        Japan will beat us to the bottom. They’re buying our debt by creating their own. China is looking for an exit, but can’t find one. They are still forced to trade with the US and Europe.

        • cdquarles says:

          Inflation and deflation are everywhere and always monetary phenomena. Inflation or deflation are determined by the supply of and demand for money relative to their perceived purchasing power, so simple quantity of money means both far less and far more than the quantity number suggests. Debt cannot cause inflation or deflation without governments interfering in money and the markets such that debt gets monetized. Debt monetization is going on gangbusters. Left to the market, all paper currencies backed by sovereign debt would disappear once gold and silver started circulating again because these are the forms of money most people know, recognize, and accept if left to their own valuations. This is why governments do not want to let the market do its thing.

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