Archives for 2011

Justin Wolfers offers sobering empirical analysis to support his 4 conclusions:

1. The slump began in late 2006. And indeed, we were hardly enjoying good times through early 2006.

2. It’s a big slump, and GDP per capita fell by over 7 percent.

3. We remain a long way below the previous peak.

4. It’s going to take a long while to return to where we were back in 2006. Most forecasters are expecting GDP to grow by around 3 percent, implying per-capita growth closer to two percent. At those rates, average incomes in 2013 will (finally!) be back around the levels of 2006.

He has some nice charts. Check ’em out.

Unfortunately, both he and the Fed think that the last few years are essentially cyclical — i.e., connected to and integrated with economic behavior and welfare/consumption before and to come. Things are grim to be sure, but we’ll get back (in 2013, go team). If only it were so.

First, as you know Dear Reader, the Stiftung has argued for years that the American economy ceased generating real (as opposed to phantom, transient, financially engineered) income and per capita growth since the mid-1990s. Second, financial engineering hid this structural dysfunction from 1994-2011 by constantly generating bubbles to obscure the real underlying atrophy and decay.

Wolfers is optimistic about 2013 because his return data point, 2006, is actually itself a bubble popping high point. Don’t look down, it’s a long, long way to fall.

For the Stiftung, our economic narrative is thus: (a) the First Tech/Telecom Bubble (1994-2001); (b) the National Security Boom (2001-present); (c) Tax Cut -Redistribution (2001-present); (d) the Second Real Estate Bubble (2002-2007); and (e) the bailouts/USG and Fed subsidies (2008-present). Bernanke all but assured in recent appearances that money will continue to be free – as in close to zero % cost of borrowing. Under normal circumstances, if we were in a cyclical moment, the Fed would not only watch out for but want to see inflation. On cue, a Second Tech Bubble is getting ready for its close up.

Our predicament is not related to normative, linear macro-economic narratives. But because we collectively don’t realize that, the U.S. continues to make illusory and dangerously erroneous choices along an inflated baseline curve. Our real welfare curve is an order of magnitude smaller. It’s highly unlikely the U.S. will hit Wolfers’ mark in 2013 because there’s literally no there, there.

To be blunt, many of the jobs vaporized since 2008 are not coming back. Those few that do will be significantly reduced. People really haven’t internalized any of this yet.

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