2017-03-18

US Industrial Production - a slow decline since November 2014

This graph shows the performance of US industrial production for the past ten years. The "cliff dive" of the Great Financial Crisis can be clearly seen, which bottoms out at 87.4125 in 2009-06. A quick recovery follows for a year, and then steady recovery until it peaks again at 105.9906 in 2015-01. But since then, Industrial production has slowly declined. Why? The 2015-01 peak was not much greater than the previous peak of 105.7290 reached in 2007-11.

Source: INDPRO

2017-02-28

US Defense Spending, and Trump's increase

Donald Trump has decided to increase defense spending:

The US military is already the world's most powerful fighting force and the United States spends far more than any other country on defence. Defence spending in the most recent fiscal year was $US584 billion ($759 billion), according to the Congressional Budget Office, so Mr Trump's planned $US54 billion ($70 billion) increase would be a rise of 9.2 per cent. In a speech to conservative activists on Friday, Mr Trump promised "one of the greatest military build-ups in American history".

Yes, an increase of 9.2% is substantial as a percentage. But how big would it be compared to previous years? The following graph is based upon two FRED sources, FDEFX and GDP.
In fact the latest figures show that defense spending has decreased to 3.88% of GDP, which is the lowest recorded since 2000 Q4 (3.77% of GDP, the lowest since 1951). An increase of 9.2% would, (using a quick and simple equation) result in defense spending at 4.237% of GDP. The last time that was reached was 2014 Q3, which isn't so long ago. Of course such an equation is not very accurate when multiple quarters over many years are taken into account, but what is seen here is not a huge increase, and is still significantly lower than other periods in history.

Of course there's always the chance that Trump and Congress will make further increases in the future. But for the majority of us in the "reality based community" would still question the need for such an increase. What foreign power is threatening enough to demand such an increase in defense spending?

If defense spending remained the same proportion of GDP as it is now (3.9% to 4.1% of GDP), America would be safe enough. The risk of being attacked by a substantial foreign power is probably the lowest in history, and the risk that America's allies face is the lowest in history. The threat posed by IS and other Islamic terrorist organisations needs to be kept in perspective, namely that they pose not even one tenth of the threat posed by the Soviet Union during the Cold War.

Moreover the increase in defense spending may presage a future military campaign. But against who? Is increasing spending on defense simply the fulfillment of an election promise or is there something more substantial in the president's mind?

2017-02-22

Japan: GDP vs Energy Use

I found this interesting graph on Wikipedia:






What it shows is empirical evidence that GDP and energy use don't always have to follow one another. Of course there is a relationship between the two, but what the graph shows is that it is possible for GDP to continue growing without necessarily increasing energy use. Graph is here.

2017-01-18

US Public Debt as percentage of GDP

Five periods of history can be see here.

1. 1970-1982, the years of Nixon, Ford and Carter, where debt remained level at approximately 25%.

2. 1982-1988, the years of Reagan and his tax cuts and defense spending increases.

3. 1988-2000, the years of Bush.1 and Clinton, in which debt reached a plateau and began falling.

4. 2001-2008, the years of Bush.2, in which tax cuts stopped reducing public debt.

5. 2008-present, the years of Obama, which coincided with the Global Financial Collapse.

Sources:

GDP

Public Debt

2017-01-12

How Mexico can pay for the wall

Mexico holds US Treasury bonds as part of its international reserve. In October last year, they had $45.9 Billion. Link here.

Assuming the total co-operation of the Republican dominated US Congress, these bonds could be permanently confiscated in order to fund the wall.

Such an act would probably be without precedent.

Iran, for example, was unable to access their US bond holdings until the recent treaty allowed them to. In this case, legislation didn't permanently seize the funds - just kept the owners from accessing it while the dispute between the two nations continued.

Of course, seizing the international reserves of a country in order to make them pay for something is hardly in the best interests of anyone. Yet here we are and Donald Trump is about to be sworn in as president.

We can look forward to some very interesting times ahead. But not "good" interesting.

2016-12-20

Voodoo Economics

Did the Reagan Tax Cuts boost Federal Government tax revenue?

See the big peak on the left of the graph? That was 1981 Q4. The cuts were implemented in 1981 Q3. As you can see, tax revenue never reached the same level before 1996. Revenue eventually hit 20.38% in 2001 Q1, but has dropped since, bottoming out at 15.44% in 2009 Q3 (in the midst of the GFC) and is around 19% at present.

So in terms of the whole "Tax cuts increase tax revenue", it certainly didn't grow as fast as the rest of the economy.


2016-10-31

US Industrial Decline in Progress - Recession Possible

There has been a long term deterioration in US Industrial production, as shown in the INDPRO index.

While monthly decreases happen all the time, a long-term decline in yearly production averages has been in place since September 2015.

When the yearly averages are placed on a graph and compared with US recessions since 1960, there is a clear correlation between long term industrial decline and recessions.

A decline in the yearly average can occur before a recession, or during a recession, as the graph below shows.

Note that I define a recession different to the NBER, but there is an overlap.







Here is how it appears on my spreadsheet:


2016-10-26

Long-term over-investment

In theory, investment should multiply growth. But it's not. Not since the early 1980s.

The US Sharemarket has outperformed Gross Domestic Product for way too long. The result has been slower growth.

2016-03-24

Is it time for American Conservatives to embrace a different voting system?

This is actually a very good time for American Conservatives to debate the issue of proportional representation and voting systems like "Instant Runoff Voting" (IRV). A "First Past the post" voting system ends up either forcing a two-person presidential election or the complete disenfranchising of a third candidate.

The classic example of this is the 1992 Presidential election in which Clinton and George H.W. Bush were joined by independent candidate Ross Perot. Despite gaining nearly 20% of the vote, Perot won none of the electoral votes. Moreover the people who voted for Perot were probably likely to have voted for Bush, which means that Clinton won the election because the opposition vote was divided. This is a natural result of a "first past the post" electoral system, which is not very democratic.

Had IRV been the voting system in 1992, the chances are that Perot's votes would have ended up being given to George Bush (since Perot voters would have nominated Bush instead of Clinton as their second choice), and Bush would have won.

Another election that would've changed is the 2000 election - it could be argued that votes for Ralph Nader would have gone to Gore (since Nader voters would've nominated Gore over Bush as their second choice).

In the current climate, IRV would create a viable alternative to Trump, so that conservative voters who hate Trump won't have to vote Democrat or choose not vote at all. One of the reasons why Trump presents a crisis to conservatives at the moment is because of the First past the post electroal system./

In short, the Instant Runoff Voting system is a far more democratic voting system than the one currently used. Both parties would have benefited from it in the past had certain elections been under IRV, which means that both parties could choose to get behind the system and nominate its use in presidential elections with a constitutional amendment.