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The latest Quarterly Report on Household Debt and Credit (pdf) from the New York Fed’s Center for Microeconomic Data showed a substantial increase in aggregate household debt balances in the fourth quarter of 2016 and for the year as a whole. As of 31 December 2016, total household debt stood at $12.58 trillion, an increase of $226 billion (or 1.8 percent) from the third quarter of 2016. Total household debt is now just 0.8 percent ($99 billion) below its third quarter 2008 peak of $12.68 trillion, and 12.8 percent above the second quarter 2013 trough.

That means the debt loads of Americans will likely surpass the previous peak later this year.

Part of the problem is that U.S. workers, whose real wages continue to stagnate, are forced to have the freedom to take on more debt in order to maintain their customary standard of living, for themselves and their families.

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The other part of the problem is that, while loan delinquency rates are generally declining, the rate for student loans (11.2 percent)—the one form of consumer debt that can’t be erased—is higher than for any other form of consumer debt. Outstanding student loan balances increased by $31 billion, and stood at $1.31 trillion as of 31 December 2016.

And, as Derek Thompson explains, the student-debt crisis is most acute not for the much-cited $100,000-debt stories, but for students whose debt burdens are much smaller, many of whom took on a few thousand dollars in debt and didn’t even get a degree.

This is particularly tragic, because these debt-without-degree adults chased the American dream into a dead end.

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Special mention

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While Wall Street celebrates yet another stock market record—surpassing 20,000 on the Dow Jones industrial average—most Americans have little reason to cheer. That’s because they own very little stock and therefore aren’t sharing in the gains.

The only possible response is, “That’s your damn stock market, not ours,” analogous to the response about Brexit and the expected decline in GDP by a woman in Newcastle.

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It’s true, even after recent declines, about half (48.8 percent) of U.S. households hold stocks in publicly traded companies directly or indirectly (according to the most recent Survey of Current Finances [pdf]).

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But, according to Ed Wolff (pdf), the bottom 90 percent of U.S. households own only 18.6 percent of all corporate stock. The rest (81.4 percent) is in the hands of the top 10 percent.

So, while the stock market has experienced quite a turnaround from mid-February of last year (when a barrage of selling sent the Dow Jones Industrial Average to its lowest close since April 2014), especially since Donald Trump’s November victory (including more than 100 points just yesterday), most Americans continue to be left out in the cold.

Clearly, a much better alternative for American workers would be to follow Shannon Rieger’s advice and look toward a radically different model: enterprises that are owned and managed by their employees. That would give them a much better chance of sharing in the wealth they create.

They would also then be able to finally say to mainstream economists and politicians, “That’s our GDP and stock market, not yours.”

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Apparently, mainstream economists are trying to shrug off the label of the “dismal science.”

On this side of the Atlantic, we have the spectacle of Martin Feldstein asserting that GDP statistics are deceptive and the economic situation in the United States really is better than it appears.

And then, across the pond, there’s Valdis Dombrovskis, the European Commission’s vice president for the euro, arguing things in Greece are just fine. In his view, the Germany-sponsored rescue program “itself is on track. The Greek economy is recovering.”

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It just so happens Dombrovskis was the Prime Minister of Latvia, from 2009 to 2014, who led the imposition of the Draconian austerity program in his home country.

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Meanwhile, unemployment in Greece remains at 23 percent, well above the Eurozone average. And the IMF and European institutions are demanding further austerity measures (equivalent to 2 percent of gross domestic product) before agreeing on a new deal to aid Greece.

It’s as if nothing has been learned in the past eight years—which means the outlook for Greek workers, like those in the United States and Latvia, can only be described as dismal.

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Special mention

tom-toro-daily-cartoon-for-tues-feb-71-1000 February 6, 2017

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Mainstream economics presents quite a spectacle these days. It has no real theory of the firm and, even now, more than nine years after the Great Recession began, its most cherished claim to relevance—the use of large-scale forecasting models of the economy that assume people always behave rationally—is still misleading policymakers.

As if that weren’t embarrassing enough, we now have a leading mainstream economist, Havard’s Martin Feldstein, claiming that the “official data on real growth substantially underestimates the rate of growth.”

Mr. Feldstein likes to illustrate his argument about G.D.P. by referring to the widespread use of statins, the cholesterol drugs that have reduced deaths from heart attacks. Between 2000 and 2007, he noted, the death rate from heart disease among those over 65 fell by one-third.

“This was a remarkable contribution to the public’s well-being over a relatively short number of years, and yet this part of the contribution of the new product is not reflected in real output or real growth of G.D.P.,” he said. He estimates — without hard evidence, he is careful to point out — that growth is understated by 2 percent or more a year.

This is not just a technical issue for Feldstein:

it is misleading measurements that are contributing to a public perception that real incomes — particularly for the middle class — aren’t rising very much. That, he said, “reduces people’s faith in the political and economic system.”

“I think it creates pessimism and a distrust of government,” leading Americans to worry that “their children are going to be stuck and won’t be able to enjoy upward mobility,” he said. “I think it’s important to understand this.”

Here’s what folks need to understand: mainstream economists like Feldstein, who celebrate an economic system based on private property and free markets, build and use models in which market prices capture all the relevant costs and benefits to society. And, since GDP is an accounting system based on adding up transactions of goods and services based on market prices, for mainstream economists it should represent an accurate measure of the “public’s well-being.”

Mainstream economists can’t have it both ways—either market prices do accurately reflect social costs and benefits or they don’t. If they do, then Feldstein & Co need to stick with the level and rate of growth of GDP as the appropriate measure of the wealth of the nation. And, if they don’t, all their claims about the wonders of free markets simply dissolve.

Notice also that, for Feldstein, the problem is always in one direction: GDP statistics only undercount social well-being. What he and other mainstream economists fail to consider is that whole sectors of the economy, like financial services (or, more generally, FIRE, finance, insurance, and real estate), are counted as adding to national income.

As Bruce Roberts has explained,

because “financial services” are deemed useful by those who pay for them, those services must be treated as generators in their own right of value and output (even though there is nothing there that can actually be measured as output at all). . .

the standard (neoclassical) approach embedded in GDP accounting means, in concrete terms, that profits in FIRE must be treated as a reflection of rising real output generated by FIRE activities, requiring a numerical “imputation” of greater GDP. And, worse, that *rising* profits in FIRE then go hand in hand with *rising* levels of imputed “output” and hence enhanced “productivity.”

If Wall Street doesn’t add to GDP—if FIRE activities just represent transfers of value from other economic sectors (both nationally and internationally)—then its resurgence in the years since the crash doesn’t contribute to output or growth.

The consequence is that GDP, as it is currently measured, actually overcounts national output and income. Actual growth during the so-called recovery is much less than mainstream economists and politicians would have us believe.

That’s the real reason many Americans are worried they and “their children are going to be stuck and won’t be able to enjoy upward mobility.”