Jack Rasmus

The big topic of last week in economics was not the Fed’s decision to reduce rates, nor Europe-Germany’s continuing industrial recession nor the US-China trade war nor anything else. It was the near collapse of what’s called the Repo Market for bank lending based on US Treasuries. Since the eruption, the Fed has injected hundreds of billions of dollars into the market and plans to continue to provide hundreds of billions more between now and mid-October. It will likely continue to do so permanently from this point. What does the Repo instability represent? Is it the ‘black swan’ (or at least gray) signaling the next financial crash? Listen to my take and analysis on the importance of this event from my Alternative Visions radio show of Sept. 20, and the event as harbinger of what is likely more global financial instability ahead.

To Listen GO TO:

http://alternativevisions.podbean.com

SHOW ANNOUNCEMENT

Dr. Rasmus dissects this past week’s spike in Repo (Repurchase Agreement) bank to bank lending market and what it means for growing financial instability in the US and globally. Candidate for financial market instability in US and worldwide are reviewed (junk bonds, BBB, leveraged loans, CDOs, etc., as well as India-Europe banks, China markets, Argentina, etc.). further slowdown of world real economy and trade underlying and interacting with growing financial market instability. Competitive devaluations via central bank interest rate and currency wars. Trump’s narrow view of tariffs and Fed rate cuts. Why the Fed was divided on last rate cut this week. In the midst of all this, the US Repo market rates spike to 10%. Official short term explanations not acceptable. Longer term more fundamental causes: Fed pulling money out of bank reserves via bond operations and balance sheet sell off in order to finance US $1 trillion plus budget deficits. Banks now addicted to more excess reserves after QE, financial structure changes since 2008, etc. Fed will now restart ‘QE Lite’ via Repo market injections (4 times this week). More Negative Rates worldwide and balance sheet ballooning again inevitable now. Fed and central banks policies no longer as economic stabilization tools but as main conduit of capital market incomes subsidization tools. Fed and central banks now secretely planning even more radical innovations next year.

Listen to my interview commentary on the Fed’s latest rate hike; why global economic slowdown and more indicators of US economy weakening will have greater net effect slowing US economy than jobs and consumers spending holding up economy; why Fed cut rates only 0.25%. Fed rates, dollar appreciation and Trump tariff-trade war nexus. My initial explanation of what’s going on in the Repo market where rates spiked to 8%: Fed selling off its balance sheet and desperate financing of US annual $1T budget deficits. Is it a harbinger of financial crisis brewing? Is new QE coming soon?

TO LISTEN GO TO:

https://drive.google.com/file/d/1dQQmly8ojIfE3eGNMPD1kpxTkwO27upn/view

Watch my 7 min. video interview of the Autoworkers strike against General Motors that began this week.

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One of the astute readers of this blog, Benl8, recently commented on my latest post of my recent radio show commentary on ‘Central Banks, Negative Interest Rates,and Helicopter Money’. Ben originally commented what is Keynesian economics to the UK Marxist economist M. Roberts’blog, and then re-posted his comment below to my blog, asking me “I wonder what Jack has to say about this Keynesian approach”. So I thought it useful for me to reply to Ben’s welcomed inquiry and give readers of this blog a sense of where my economic views stand in relation to Marx, Keynes, and post-Keynesian economic schools of thought. Are my views Keynesian? Marxist? Minskyan? Whatever. Here’s Ben’s post and re-post and my own in depth reply:

Benl8;

“I left the following comment at M. Robert’s (A British Marxist economist–my paren) recent post on the same topic. I wonder what Jack has to say about this Keynesian approach. ——-
“Pushing on a string”, is the often chosen description of this policy. Futile is the end result. I’m trying to read about the Reconstruction Finance Corporation which operated from 1932 to 1952. After WWII it was phased out. In the 30s it saved mostly solvent banks with emergency loans, and it bought railroad company debt. Mostly in the 1930s the WPA was the conduit of money, it transferred money directly to workers and families, it was direct job creation, the rate of unemployment dropped from 25% to 9.6%, 1933 to 1937. Keynes also had a solution for perpetual surplus nations, the creation of an International Monetary Clearing Union. This would prevent the race-to-the-bottom in wages that we see with China-US trade. And in the case of Germany, or any surplus-mercantilistic nation, it would require the surplus funds to be invested in the deficit countries. From Paul Davidson’s book The Keynes Solution, page 138: It would encourage creditor nations to “spend these excess credits in three ways: 1.) on the products of any other IMCU member (import more); 2.) on new direct foreign investment in projects in other IMCU member nations (projects, not financial assets); 3.) provide foreign aid similar to the Marshall Plan. And a fourth, maybe, raise wage income in the surplus nation such as increased Earned Income Tax Credits. It’s all about aggregate demand and a balance of income distribution, within each nation and between nations. Direct job creation is a good part of the Green New Deal, some of it targeted to specific low-income communities and geographies. But most of it spent on upgrades and transitions to renewable energy. I’m not sure what Marxists are calling for, but this is state-managed capitalism, and it may lead to the more socialized condition of a world economy. My blog: http://benL88.blogspot.com

Jack Rasmus Reply to Ben

Classical economics was big on supply side approaches to economic growth. Add more capital, more labor, more land and in the long run that produced more products–i.e. supply. They were not very big on consumer demand that might stimulate that production in the shorter run (except for Malthus who had the crazy idea to stimulate demand by diverting more income to landowners. Malthus was a big landowner of course).

Marx’s economics is in the classical economics tradition. Marx uses the same classical conceptual framework, which he redefines in some ways but still remains well within. Example: the classical labor theory of value by Smith, Ricardo and others gets a work over and becomes the basis for explaining Capitalist growth slowdown by Marx–but like his classical economics predecessors, in the long run (i.e. Marx’s breakdown theory). But Marx, like the classicalists before him, Smith, Ricardo, Malthus, et. al., never had an explanation for the business cycle. That’s short run. Even depressions. Nevertheless contemporary Marxist economists continue to try to apply his long run, supply side views on capital accumulation and labor exploitation to explain short run business cycles. Marx never intended that, however. The classical economics conceptual framework, built to explain long run growth or the lack thereof, does not work to explain shorter run business contractions, including depressions. Nor does Marx, or contemporary marxists, give much attention to financial cycles and how they periodically impact real cycles in the short run creating recessions, great recessions, and even depressions. Capitalist financial markets were undeveloped in mid-19th century Britain (the basis for Marx’s data and empirical analysis). Smith, Ricardo and other classicalists understood banking and finance even less. Marx not much better. (One exception might be the banker, Thornton, whose works are often not read). ANd Marx did not give sufficient attention to effective demand, although it plays more a role than in SMith-Ricardo-JB Say. (Yes it was part of his circulation of capital system of analysis but demand was the consequence of production, which was primary. What he called ‘realization crises’ recognized demand as a factor, but production was the driving force of exploitation and therefore of the movement and circuit of capital from inputs to goods to money back to inputs again) . Marx was the most advanced thinker among classical economists, working with their conceptual framework and even advancing it as far as it could go. But capitalism has evolved tremendously since 1850s Britain. It has become more financialized. It has become more globalized. It has radically transformed labor, product and money markets. The nature of money has itself changed. Unfortunately, contemporary Marxists (not all, but especially Anglo-American) have not kept up with these changes (which is very un-Marxist by the way). They instead continue to try to ‘fit’ modern capitalist dynamics into 1850 classical economic theory. Or, in other words, ‘fit’ a square reality into a round hole of past theory.

Keynes broke from the classical and neoclassical economic traditions and tried to create a new analytical framework. He succeeded only partly. And his theory was furthermore distorted by the counter-revolution in economics that followed after world war II that attacked his ideas. What followed attempted to cherry pick what it found useful in Keynes while largely restoring pre-Keynes economic nonsense called neoclassical economics and create a hybrid, a ‘bastardized’ form of Keynes. What purports to be Keynes today is mostly not Keynes but this hybrid ideological synthesis that is sometimes called ‘Keynesianism’ or Keynesian economics.

The real Keynes attempted to develop understanding of short term contractions called business cycles, how and why they occurred and how to recover from them. He debunked neoclassical economics before him. The key he argued was household demand. That was driven by employment. And employment could only be driven by government spending in a deep contraction of a business cycle. He argued against cutting interest rates and cutting business taxes to boost investment first. It wouldn’t work, he argued. What drove investment was not cost of investment (whether taxes, cost of money, etc.). Business cost reduction in a contraction of the cycle would not generate investment nor in turn a return to production and therefore jobs and income to stimulate consumption. Raising consumption directly is what would restore investment (not tax cuts, low rates, wage cuts or even price increases). Getting disposable income in the hands of consumers was the crux to recovery. That could be done in a variety of ways. Get the government to directly hire the unemployed when businesses wouldn’t. Provide unemployment insurance payments. Set a minimum wage. Start public works projects that would create construction jobs. Let unions become legal and expand. That too would raise wages of those with jobs. Provide social security for retirees. Take over mortgages and refinance them for 30 years, instead of the then typical 10 at the time, in order to lower mortgage payments and in turn give households more money to spend (the Home Owners Loan Corporation which functioned much like the Reconstruction Finance Corporation). The New Deal of FDR looked very much in practice what Keynes was advocating in theory. The idea was to raise disposable household income, that would drive consumption, that would in turn provide an incentive for business to invest again, and thereby hire more workers, raise income, etc, and commence a virtuous ‘upward cycle’. It was ‘bottom up’ recovery. Households and workers got recovered first, then ‘trickled up’ via consumption to business revenue, profits, and eventually into more investment.

But capitalists, and especially bankers, don’t like ‘trickle up’ and they own the politicians who vote on programs. They also determine the composition and policies of the central banks. So we get instead now bail out the bankers and continual subsidization of them even long after they’ve been bailed. We get bail out both bank and nonbank businesses via constant, chronic trillion dollar tax cuts and direct subsidy fiscal policies. The ideological argument is then that they will ‘trickle down’ some of their great profits to in turn boost real investment to create jobs and income for workers and households which then boosts consumption. That’s the logic offered as truth and reality but it just doesn’t work in that direction. In today’s 21st century capitalism the ‘trickle down’ has become a mere ‘drip drip’. Most of the tax cuts, and monetary policy of near zero interest rates and free QE money, doesn’t get into real investment in the US any more. It flows instead offshore in today’s globalized capitalism where US multinational corporations increasing invest and produce (they call it ‘supply chains’); or it gets diverted into financial markets that cause stock, bond, and derivative bubbles (that also don’t create any US jobs); it goes into mergers & acquisitions financing that only makes shareholders richer; or it is left to sit on corporate balance sheets waiting for the next lucrative financial or offshore investment opportunity to come. Keynes began to see this in 1935. Check out his Ch. 12 of his General Theory book. Marx had no idea of this in his first volume of Capital published in 1867 (based on 1850s-60s data in Britain). But Marx began to suspect the outline of this development in his unpublished notes in vol 3 of Capital. Gathered together by Engels, from the notes it is unclear who the author is sometime, Marx or Engels, the latter of whom was far less an economist than Marx).

So both Marx and Keynes were on to something abut the key role of employment, household income, demand and consumption as key to understanding business cycles. Marx only vaguely so; Keynes even more so. But both were still before their time.Their views don’t adequately explain 21st century capitalism business cycles.

The economist Hyman Minsky attempted to take Keynes into the world of late 20th century capitalism that was beginning to transform from what Keynes in 1930s saw. Minsky wrote from the 1970s to the early 1990s. So he had a clearer view of what was going on, but still could see only the early outlines of what was coming in 21st century capitalism.

Readers should go back and read Marx’s vol. 3, Keynes General Theory, and Minsky’s 1990 articles. (For my take on all this, see my extensive Part 3 of my 2016 book, ‘Systemic Fragility in the Global Economy’, that reviews classical, Marx, Keynes and Minsky views, and then summarizes my own early views on how 21st century capitalism evolves as financial cycles interact with real cycles–sometimes producing ‘normal’ recessions, sometimes ‘epic’ recessions (that some call ‘great recessions), and occasionally bona fide economic depressions.

Davidson’s book referred to by Benl8 is in the tradition of trying to restore Keynes’ actual views, not just the errors and ideology of the hybrid Keynesianism that is a synthesis of pre-Keynes with Keynes in the worst combination. That hybrid Keynesian view mis-taught generations of young economics students from the 1950s to the 1970s, until it was overthrown by a full retreat back to neoclassical economics led by Friedman’s monetarism, the Chicago school, and dozens of nonsense offshoot theories after 1980. Davidson is in the school of what’s called ‘Post Keynesians’, who try to go back to the original views of Keynes. Minsky would be a ‘Financial Keynesian’ of which they are more today (Wray, Keen, Tymoigne, etc.). Contemporary Marxists, especially the Anglo-Americans (the Europeans and emerging market Marxists are at least trying to revise Marx to the realities of 21st century capitalism), are still mostly trying to stick square pegs in round holes. Contemporary marxists aren’t really marxist economists. They are Marxist Philologists. There’s a few notable exceptions, like Harvey who are more open minded.

Keynes of course, and Minsky as well, do not have all the answers. Capitalism has evolved even beyond them. But they do have something of great value to add to our understanding of the role of income, demand, consumption, the destabilizing effects of financial speculation and bubbles, etc., as well as current day capitalism in general and should both be read. But read only in the original. My recommendation is don’t waste time with third party summaries that mostly distort intentionally, or who haven’t really understood or even perhaps read Keynes or Minsky. (ditto for Marx who should not only be read in the original; but I would add also read backwards; that is, start with vol. 3. Or first read Marx’s pamphlet, ‘Value, Price and Profit’ and then read vol. 3). But you’ll only really understand Marx if you immerse yourself first in the main texts of classical economics: Hume, Carnot, Smith, Ricardo, Thornton, etc. (You can skip Malthus.)

For my views in relation to all three–Marx, Keynes,Minsky–there’s my 2010 book,’Epic Recession'(2010), the chapter on ‘What’s Financial Imperialism’ in my book ‘Looting Greece: A New Financial Imperialism Emerges’ (2016), the last chapter in ‘Systemic Fragility in the Global Economy'(2016), and the final chapter in ‘Central Bankers at the End of Their Ropes'(2017).

Hope that addresses some of the excellent points made by Bl8, who always provides thoughtful questions and comments.

Listen to my interview with WBAI-NY on the issues in the GM auto workers strike that began yesterday, as 46,000 walked off their jobs to improve job security, plant shutdowns protest, end to two tier wage structures, stop shifting of rising health care costs to them, and hundreds of other unresolved issues. What’s behind the legal attack on the UAW national leadership.

TO LISTEN GO TO

:

https://soundcloud.com/user-879607737/091619-uaw-strikes-gm-war-powers-wheres-congress-militarization-guts-rights

Listen to timeline starting at about 4:00minutes to 11:00minutes.

Listen to my Alternative Vision radio show today, September 13, discussion of the European Central Bank’s decision to restart QE and lower interest rates further into negative territory. What are the consequences of negative rates? Why will the $17 trillion global negative rates mean for the pending global recession? Why is Trump demanding the US central bank drive rates into negative range as well? What are central banks worldwide cooking up as responses to the next recession, now that they’re ‘at the end of their ropes’? For this discussion, and first preview of the main themes of my forthcoming October 2019 book,’

,

GO TO:

http://alternativevisions.podbean.com

SHOW ANNOUNCEMENT:

Today’s show focuses on the recent decision by the European Central Bank to re-introduce QE and drive Europe’s more than $7 trillion in interest rates further into negative territory. Another $22b per month in QE and rate reduction to -0.5% when, over the past 5 yrs QE and negative rates have not stimulated the European economy. Reasons why QE and neg rates have little effect. How $17 trillion in negative rates worldwide is a growing problem and won’t stimulate the Euro economy. Lower rates as exchange rate currency/ trade move. Why Trump is now calling for US negative rates. Why central banks (including Fed) now secretly discussing new tools and tactics for the next recession, including ‘bail ins’ and calls are growing by high level capitalists for the Fed and central banks to expand their authority into fiscal policy areas (as predicted in my 2017 book, ‘Central Bankers at the End of Their Ropes’). Consequences of such for US Constitution and fiction of ‘central bank independence’. Rasmus discusses US deficit now officially projected to exceed $1 trillion a yr. The Democrat Party latest debate and opposition to Medicare for All. And what’s behind the recent ‘softening’ of US & China trade war (and why a deal may now be closer with ‘decoupling’ of technology issue). Rasmus introduces the show with brief outline of his forthcoming book, ‘The Scourge of Neoliberalism: US Economic Policy from Reagan to Trump’, October 2019, and shares its main themes. (Review of chapters coming in following weeks of this show).

Watch my video interview with ‘Other Voices’ TV show in Palo Alto, CA, on September 11. The topics: the latest developments in the US-China trade war and why next generation technology is the key issue behind the trade negotiations. An eventual settlement will require both sides putting aside the tech issue for later negotiations and settling on the many concessions already on the negotiating table. (Trump now talks of a ‘two track’ negotiation, suggesting a deal on what’s agreed to date and address tech and other issues later). Questions also address the firing of Bolton and role of Neocons in US-China trade negotiations to date. What’s the real picture on US wages and jobs. And the likelihood of a US recession in the next year.

T

O WATCH the Youtube video

of the Interview GO TO:

https://www.youtube.com/watch?v=zOLV2qlu9js&feature=youtu.be

Just a short addendum here to recent posts here challenging the official government (Labor Dept.) view that wages rose 3.1% last year. And a commentary on what the recent firing of neocon, John Bolton, may mean for the US-China trade war.

Median Income vs. the 3.1% Wage Gain Spin

Yesterday the Commerce Dept. issued its report on quintiles (20% segments) on income inequality in the US. It showed that Median Household Income rose only 0.9% in 2018, which “officials said isn’t statistically significant from the prior year” (Wall St. Journal 9-11-19).

This corroborates my argument that the 3.1% (really 1.5% after government’s own inflation adjustment) represents wage gains skewed to high end wage earners, the 10% or so of the labor force who are tech engineers, professionals, supervisors, advance degreed health care, etc.). The vast majority of workers saw little if any wage gains. Only 0.9% per the Commerce Dept. at the median household level. (Unadjusted for inflation also?).

This also supports the findings of the various independent surveys noted in my prior posts (Bankrate,Payscale, McKinsey, etc.) that estimated median wage gains ranging from -0.8% to 1.1% as well as the finding that 60% of the workforce saw no wage increases at all in 2018.

And now Trump’s tariffs are about to hit household consumption big time. Chase bank researchers estimate the tariffs that took effect Sept. 1, 2019 will result in a reduction of an average $1000 per household. That will whack consumer spending, two thirds of GDP, big time going forward. With construction spending, manufacturing, and business investment all turning negative now, only consumer spending has been holding up the US economy, based mostly on credit card and other debt based spending increases. Now that will be reduced by $1000. So watch for consumer spending to weaken over the coming winter.

Will Bolton Departure Weaken Anti-China Hardliners’ Opposition to a Deal?

That’s why Trump is now so desperate to force the Federal Reserve, Powell, to rapidly cut interest rates, as he is now demanding, to zero if necessary. But those cuts will have little, if any, effect on the real economy. The central bank rate cuts are instead about trying to slow the rise of the value of the US dollar, however, not about stimulating real investment and GDP. If that dollar rise continues, already up 10% this year, it offsets Trump’s tariff hikes and thus undercuts his hand in negotiations with China. That’s why a further slowing US economy and dollar rise, should they occur, will likely push Trump toward closing a deal on trade with China. But not yet. Wait until closer to 2020 election. The US economy will have to get worse. And it will.

Now that Bolton’s been thrown under the bus by Trump (with so many others), the influence of the neocons in Trump’s regime are reduced and chances of a trade deal with China are rising. Trump will eventually strike a deal, likely next year, take the major concessions China thus far has offered and has left on the table, and lie about the rest of his concessions to his political base. Trump desperately needs a deal on trade with China before the 2020 election in order to win next November. He also needs one or more ‘wins’ in foreign policy he can promote and exaggerate (Iran, So.Korea, etc.). Bolton was an obstacle who engineered the collapse of negotiations with So. Korea, the failed regime change and almost invasion of Venezuela, and the near war with Iran. (He may have also been behind the collapse of the Taliban meeting with Trump recently, which he, Bolton, adamantly opposed). With Bolton now gone, it will be interesting to see if Mnuchin and Pompeio are given the lead over the remaining neocon advisors–Lighthizer and Navarro–in the next round of China trade negotiations. If so, some kind of a deal grows closer with China.

In a post last week I took issue with the Trump administration’s claim–repeated ad nauseam in the media–that wages were rising at a 3.1% pace this past year, according to the Labor Dept. In my post I explained the 3 major reasons why wage gains are much lower, or even negative.

First, the 3.1% refers to nominal wages unadjusted for inflation. If adjusted even for official inflation estimates of 1.6%, the ‘real wage’, or what it can actually buy, falls to only 1.5%.

Second, the 1.5% is an average for all the 162 million in the US work force. The lion’s share of the wage gain has been concentrated at the top end, accruing to the 10% or so for the highly skilled tech, professionals, those with advanced degrees, and middle managers. That means the vast majority in the middle or below had to have gotten much less than 1.5% in order for there to be the average of 1.5%. More than 100 million at least did not get even the 1.5%. In fact, independent surveys showed that 60 million got no wage increase at all last year.

Third, the 1.5% refers to wages for only full time employed workers, leaving out the 60 million or so who are part time, temp, gig or others, whose wages almost certainly rose less than that, if at all. Other surveys noted in my prior post found wage gains last year only between -0.8% of 1.1%, depending on the study, and not the 3.1%.

But here’s a Fourth reason why even real wages are likely even well below 1.5%.

As I suggested only in passing only in my prior post, the 1.6% official US government inflation rate is itself underestimated. Not well known–and almost never mentioned by the media–is the fact that Labor Dept. stats do not include rising home prices at all in its estimation of inflation! Incredible, when home prices are among the fastest rising prices typically and always well above the official 1.6% or whatever. And the ‘weight’ of home prices in the budgets of most workers is approximately 30% or more of their total spending. So that weight means the effect on households is magnified even more. If appropriately included in inflation estimates, housing prices would boost the reported inflation rate well above the official 1.6%. How much more? Some researchers estimate it would raise the official inflation rate of 1.6% to as high as 4%. (see the discussion n the August 30, 2019 Wall St. Journal, p. 14).

If the inflation rate is higher, then the nominal 3.1% adjusts to a real wage even less than 1.5%.

If the inflation rate were 4%, not 1.5%, then real wages adjusted for inflation would be -0.9%. And when the ‘averaging’ and ‘full time employed’ effects are considered, real wages for the majority of US workers last year almost certainly fell by as much as -2.0% to 3.0%.

Since we’re talking about housing, here’s another official government stat related to housing that should be reconsidered since it makes US GDP totals higher than they actually are:

US GDP is over-estimated because gross national income (i.e. the income side to which GDP must roughly equal) is greatly over-stated. How is national income and therefore GDP over stated? The US Commerce Dept., which is responsible for estimating GDP, assumes that the approximately 50 million US homeowners with mortgages pay themselves a rent. The value of the phony rent payments boosts national income totals and thus GDP as well. But no homeowners actually pay a mortgage and then also pay themselves an ‘imputed Rent’, as it is called. It’s just a made up number. Of course there’s a method and a logic to the calculation of ‘imputed rent’, but something can be logical and still be nonsense.

Government stats–whether GDP, national income, or wages or prices, or jobs–are full of such questionable assumptions like ‘imputed rents’. The bureaucrats then report out numbers that the media faithfully repeat, as if they were actual data and fact. But statistics are not actual data per se. Stats are operations on the raw or real data–and the operations are full of various assumptions, many questionable, that are explained only in the fine print explaining government methodology behind the numbers. And sometimes not even there.

Here’s another reason why US and other economies’ GDP stats should be accepted only ‘with a grain of salt’, as the saying goes: In recent years, as the global economy has slowed in terms of growth (GDP), many countries have simply redefined GDP in order to get a higher GDP number. Various oil producers, like Nigeria, have redefined GDP to offset the collapse of their oil production and revenue on their GDP. In recent years, India notoriously doubled its GDP numbers overnight by various means. Some of ‘India Statistics’ researchers resigned in protest. Experts agree India’s current 5% GDP number is no more than half that, or less.

In Europe, where GDP growth has lagged badly since 2009, some Euro countries have gone so far as to redefine GDP by adding consumer spending on brothels and sex services. Or they’ve added the category to GDP of street drug sales. But any estimate for drug spending or brothel services requires an estimate of its price. So how do government bureaucrats actually estimate prices for these products and services? Do they send a researcher down to the brothel to stand outside and ask exiting customers what they paid for this or that ‘service’ as they leave? Do they go up to the drug pushers after observing a transaction and ask how much they just sold their ‘baggie’ for? Of course not. The bureaucrats just make assumptions and then make up a number and plug in to estimate the price, and therefore the service’s contribution to GDP. Boosting GDP by adding such dubious products or services is questionable. But it occurs.

The US Commerce Dept. that estimates US GDP has not gone as far as some European countries by adding sex and illicit drug expenditures. But in 2013 the US did redefine GDP significantly, boosting the value of business investment to GDP by about $500 billion a year. For example, what for decades were considered business expenses, and thus not eligible to define as investment, were now added to GDP estimation. Or the government asked businesses to tell it what the company considered to be the value of its company logo. Whatever the company declared was the value was then added to business investment to boost that category’s contribution to GDP. A number of other ‘intangibles’ and arbitrary re-definitions of what constituted ‘investment’ occurred as part of the re-definitions.

Together the 2013 changes added $500 billion or so a year to official US GDP estimates. The adjustments were then made retroactive to prior year GDP estimates as well. Had the 2013 re-definitions and adjustments not been made, it is probable that the US economy would have experienced three consecutive quarters of negative GDP in 2011. That would therefore have meant the US experienced a second ‘technical recession’ at that time, i.e. a second ‘double dip’ recession following the 2007-09 great recession.

The point of all these examples is that one should not blindly accept official government stats–whether on wages, inflation, GDP, or other categories. The truth is deeper, in the details, and often covered up by questionable data collection methods, debatable statistical assumptions, arbitrary re-definitions, and a mindset by most of the media, many academics, and apologists for government bureaucrats that government stats are never wrong.

Dr. Jack Rasmus
copyright 2019
Dr. Rasmus is author of the forthcoming book, ‘The Scourge of Neoliberalism: Economic Policy from Reagan to Trump’, Clarity Press, October 2019. He blogs at jackrasmus.com and tweets @drjackrasmus. His website is http://kyklosproductions.com and podcasts from his Alternative Visions radio show are available at http://alternativevisions.podbean.com.

Trump has announced a new plan to radically change residential housing market in the US to benefit investors at the expense of home buyers. At the core of his plan is the privatization of the quasi-public housing finance institutions, Fannie Mae and Freddie Mac. Both originated as government agencies to ensure lower cost 30 yr. mortgages. Now Trump wants to sell them off to hedge funds and other investors. They’ll issue new IPOs and reap hundreds of billions of speculative profits. Then they’ll continue to acquire the billions in operating profits from them for years to come, instead of the profits now going to the federal government to help offset US budget deficits and $1 trillion plus annual additions to the US national debt.

Listen to my 12 minute Loud & Clear radio show interview on the topic below

GO TO:

https://www.spreaker.com/user/radiosputnik/trump-works-for-wall-street-pushes-housi