Economic Dynamics

* The Republican propaganda machine has spent much of every day and night for three years blaming Obama for the slow economic recovery. I would argue that presidents deserve little praise or blame for economic swings during their terms. In case of the latest downturn, conventional tools for economic stimulation had been spent before Obama's tenure.
* Time courses of several economic swings are beautifully illustrated in a couple of graphs published on the web by Bill McBride. Seen in his graphs, the Great Depression was by far the deepest and longest period of job loss. Downturns between 1948 and 1980 were rather short lived. Then each subsequent downturn (1981, 1990, 2001 and 2007) was longer than the previous one. The first three of these were shallow, reflecting the responsiveness of economic activity to reductions of Federal Reserve interest rates. We grew complacent with the apparent ability of the Fed to prevent large recessions.
* Then came the catastrophic recession of 2007, which involved several bank failures. After several desperate actions to stop the bleeding, employment slowly improved and continued improving slowly until the present.
* The slowness of employment recovery in the present recession is due primarily to two facts: 1) Interest rates were already so low that lowering them had little effect, and 2) Businesses won't borrow to expand with fewer than normal customers and orders. In other words, economic actors weren't in a position to respond to a push from slightly easier borrowing. The economy hasn't been capital limited for decades.
* There is reason to fear an interruption of our slow recover, ie a second dip. This is due to imbalance among European countries, who are experiencing bail-out fatigue, and to maturing of the Chinese economy, which can't go on with infrastructure projects forever.
* Most of these factors are out of the president's control. However, there are outside-the-box policies that could get our economy back to a satisfactory steady state.

Economic growth and economic health

* Almost every day a current-events broadcast has someone prescribing more economic growth as a cure for some of America's troubles. I wonder whether there is a definition of economic growth that authorities can agree on. I'll bet that most pundits think that economic growth is GDP growth and that GDP growth is a measure of economic health.
* In fact GDP growth is largely a product of population growth and inflation, neither of which is universally desired. Those of us who feel an ethical obligation to future generations should be imagining, discussing and seeking a society that functions satisfactorily without population growth and with minimal inflation.
* GDP is a normalizing reference or denominator for numerous macroeconomic variables, such as tax revenues, government spending, market indices and especially national debt. For example, lenders' confidence in government bonds depends on (national debt)/GDP. But GDP and its growth is not economic health. In a developed society, one that produces plenty of what it needs, the most reliable expression of economic health is employment rate which is: 100 minus unemployment rate as percentage. In my opinion, this measure of economic health can be nudged to a satisfactory value by several small tweaks in public policy.
* Since GDP growth is mostly population growth and inflation, I postulate that growth of GDP/(population x CPI) should be a pure expression of what's desirable about economic growth. Population is measured only once per decade, so one must interpolate population to estimate this index annually. As seen in Fig 1, 0.1*GDP/(Pop*CPI) passes through 1.0 in 1960, so it is named "Prosperity relative to that in 1960". I calculated this "Prosperty rel 1960" for the past 6 decades and found something interesting.

Over this period, 0.1*GDP/(Pop*CPI) increased 2.47x (from 0.88 to 2.17).
* The important result is that Americans on average have well over twice the buying power of their grandparents. That is, we average people could save over half our incomes if we kept our appetites for stuff down to that of our grandparents, or we could use over half our incomes for nonessentials. Everybody who feels that rich hold up your hands. The increased buying power is due to technology and exploitation of poor foreigners holding down inflation.
* The problem is that this extra wealth has gone to the top 10% of Americans, none of it went to the bottom 90%, and the bottom 30% are poorer. If the increase of average buying power was indeed confined to the top 10%, then their buying power would have increased 25 fold. What did they do to deserve that? The wealth is obvious in southwest Davidson Co and Williamson Co. Perfectly good homes were razed to make way for McMansions, and new homes are super mansions--drive down Tyne Blvd, Hillsboro Rd and Franklin Rd.
* Should we discuss the ethical implications of the modern distribution of wealth? Is it right to leave the bottom fifth of our population out of productive employment when we are awash in money? Is failure to share life's satisfactions sinful? Is greed on the rise? What happened to noblesse oblige? This ain't my Utopia. Is it your Kingdom of God?

Reaganistic dynamics not confirmed

* In a Sept 7 Tennessean Letter to the Editor, Donnie Allen claimed that the economic success under Clinton was due to a cut in the capital-gains tax rate (Reaganomics), specifically that Clinton's economic improvement started in 1995, the year when the capital-gains tax was reduced from 29% to 15%. These data are wrong, as can be seen comparing a plot of unemployment-rate history with a table of capital-gains-tax history.
* In fact, employment began a steady improvement in 1992, when the capital-gains tax had been 29% for five years and would remain so until being reduced to 21% in 1997. The economic improvement was largely due to a tech boom that continued until 2001, when it deteriorated rapidly as the .com bubble popped and Al Qaeda attacked us.
* There were three earlier periods of substantial economic improvement in the past half century. The first began about 1960, in the middle of a two-decade period of 25% capital-gains tax. Space-race spending may have contributed. Another improvement began in 1975, five years into a nine-year period of 35% capital-gains tax. This may have been due to a real-estate bubble that popped after 1980. Another improvement began in 1983, two years after the tax rate was lowered from 29% to 20%. This timing is consistent with Reaganistic theory; but the improvement was almost certainly due to steep reductions of interest rates after the economy had been spring-loaded by years of above-15% interest rates. Falling oil prices helped.
* The data fail to support Reaganistic theory because our economic health hasn't been capital-limited for the past half century. Reagan's tax cuts served only to enrich the already rich, thereby growing the hedge-fund industry.

Republican hatefulness

* Sue Heilman (Aug 23, Tennessean Letters) complains that Republicans have an undeserved reputation for hatefulness, just because they disagree with liberals on issues.
* I know Republicans. Some of my best friends are Republicans (as are my smartest kin). Not one has repudiated or apologized for Rush Limbaugh--the mind and heart of today's conservative movement now dominating the Republican party, who regularly characterizes me and my peeps as vile and despicable, who encourages non-renewable-resource profligacy out of hate for Al Gore and for my grandchildren, who has an insulting name (nazi, socialist, communist) for those in need of justice (labor, women, blacks, gays, poor) and those seeking to extend justice (liberals, progressives, Democrats), who says that our president hates America and whites and is destroying our economy. He uses a variety of deceptive devices to engender hate for progressives, including straw-man arguments, where he attacks Democrats for attributes that he falsely assigns to them.
* All hosts on Fox News Radio (AM 1510) are similarly hateful and deceptive. It was Steve Gill who called Obama a vile and despicable or contemptible nit wit early in 2009, intentionally squandering an opportunity for some redemption in our society.