Sunday, February 20, 2011

The TOTAL Volume of Trade is Most Important

From Cato's Dan Griswold post "Rising Exports—and Imports—Are Good News for U.S. Economy":

"Politicians and commentators love to focus on the deficit, as though it were a scorecard of who is winning in global trade, but the real measure is the total volume of trade. As economies expand, so does trade, both imports and exports. Exports help us reach new markets and expand economies of scale, while imports bless consumers with lower prices and more choices, while stoking competition, innovation, and efficiency gains among producers.

By this measure the BEA's recent trade report for December was good news all around, and one more sign that the U.S. and global economies continue to recover from the Great Recession. Last year, U.S. exports of goods were up 21 percent from 2009, while imports were up 23 percent. In contrast, in the recession year of 2009, exports of goods dropped 18 percent from the year before while imports plunged 26 percent. (Unemployment soared in 2009, but, hey, at least the trade deficit was “improving”!)"

MP: I've made this point before about the importance of adding exports and imports to report total trade, see posts here and here.  As the top chart above illustrates, total trade plummeted by $120 billion due to the global recession from mid-2008 through the summer of 2009, and this was at a time when our monthly trade deficits were "improving," from almost -$70 billion to less than -$30 billion.  Obviously, the declining volume of total trade in 2008-2009 was a much better indicator of the deteriorating economic conditions than the "improving trade deficit."

As Dan points out, when it comes to measuring economic performance of the U.S. economy, the most meaningful and relevant measure is "total trade" and not the relatively meaningless current account "trade deficit" for goods and services (which is exactly offset by a capital account surplus).   It's unfortunate that the total volume of international trade doesn't get more attention.  Thanks for Dan Griswold for making the case. 

47 Comments:

At 2/20/2011 11:23 AM, Blogger VangelV said...

As Dan points out, when it comes to measuring economic performance of the U.S. economy, the most meaningful and relevant measure is "total trade" and not the relatively meaningless current account "trade deficit" for goods and services (which is exactly offset by a capital account surplus). It's unfortunate that the total volume of international trade doesn't get more attention. Thanks for Dan Griswold for making the case.

I am sorry to keep disagreeing but the case has not been made. When governments print massive amounts of money and flood the troubled economies it is not a surprise that trade volumes go up. But is this a good thing given the requirement to pull the injected liquidity out of the economy or face hyper-inflationary pressures?

What the world economy needed was the liquidation of malinvestments that would have reduced overall activity for a time. That would have created a sound foundation for future growth as resources would have flown into the hands of people best able to allocate them most efficiently. But when you 'fix' the problem by keeping inefficient dinosaurs like GM afloat their more efficient competitors were weakened and put under more stress.

I am sorry Mark but by looking at a few data points and not evaluating context you ignore the reality and miss the really big picture. Things are not nearly as bright as you imagine them to be. While it is possible that the intervention could cause the can to be kicked further down the road for a few years, the total stress on the real economy is growing and sooner or later it will find the weak spot that causes the entire system to tumble down. Perhaps at that time you will see the folly of interventionism and will stop cheering the power brokers who got us into this mess.

 
At 2/20/2011 11:42 AM, Blogger morganovich said...

vangel-

yup. that's it precisely. well said.

 
At 2/20/2011 12:58 PM, Blogger Benjamin said...

This comment has been removed by the author.

 
At 2/20/2011 1:02 PM, Blogger Benjamin said...

Dow headed for 13k this year, looks like. Inflation dead. The Fed has the field wide open for big QE. Trade booming, globally.

Look for secular rallies in equities, properties, and maybe even commodities have life yet (higher commodity prices tend to lead to gluts, however).

Total stress on the economy? Decreasing--we are deleveraging. If we can get inflation up into the 4 percent range, we would delever that much faster.

BTW, just back from Thailand, much new construction in rural areas, and Japan has advised Thailand it will need 700,000 skilled workers for Thai plants in next 10 years. Huge story buried--Thailand'd total pop is just 67 million.

Evidently, Japan businesses, nearly suffocated by the Bank of Japan's monetary noose (check out the yen) will use Thailand as manufacturing platform to take on China. The yen can buy a lot of factory in Thailand.

Then, Japan can export competitively from its Thai platform, taking advantage of cheap baht. china may find a rival it cannot beat--and China will become more expensive in years ahead.

BTW, anyone who advises zero inflation should check out the woe that is Japan in the last 20 years, and bond buyers expect another decade of deflation, at least. People have stopped making families in Japan--what happens when elderly bond-owners call the shots. Ruin.

Utopian and idealistic theories should be left to the cranks and academics. Trying out paleomonetarism in the real world can have untoward results.

 
At 2/20/2011 1:26 PM, Blogger morganovich said...

equities, properties and commodities all rallying but there is no inflation.

benji, repeating the same nonsense over and over again like some sort of mantra of economic ignorance is not going to make it true.

QE has already failed. been watching the yields on the long end since QE2 was announced? yup, there was money well spent. every dollar the fed spends is met by $1.05 in sales from the EE's who have now lined up alongside the bond market vigilantes who they have held in check for a decade.

that will:

1. cause the fed to take a big loss on its bond portfolio

2. increase US debt service costs, especially with these kinds of deficits.

3. shorten the duration of average US bonds outstanding, further destabilizing our financial situation

4. encourage other to let their currencies appreciate boosting US inflation.

helluva policy you champion there.

QE2 is just the latest in a long litany of failed attempts by states to control the economy.

such policies have never worked.

you cannot become solvent through profligacy.

 
At 2/20/2011 2:07 PM, Blogger Benjamin said...

Morgan-

Of course we have can have good rallies in equities and property, yet low inflation. Maybe you are too young to remember the 1990s.

QE failure? Look at Dow since QE2. Look at rising output. The employment figs from household surveys are very good.

The ongoing global boom was interrupted by property bust in the USA, and then subsequent global recession (aided by dufus central banks, who were not aggressive enough in stimulating).

But the ongoing global boom will now continue.

It may be Asia will grow a lot faster than the USA. Yes, we have structural impediments, such as regs, the rural welfare state, a parasitic military, crazy lawyers etc. I would like to improve those structural impediments.

Still, we grw before with all that, and we are growing again.

We are delevering. Some mild inflation would help a lot.

But boomtimes are coming, globally. China, Thailand, India, the USA, Korea are very well positioned. Europe okay. Maybe Iraq booms on oil.

Africa, Islam, and Latin America not so great. Culture can thwart anything.

BTW, one of the most corrupt regimes globally is Afghanie, where they execute people for converting to Christianity. A narco, Islamic state. We have unloaded $1.5 trillion to set it up.

If we cut back on federal waste such as that, we will do fine.

 
At 2/20/2011 2:20 PM, Blogger morganovich said...

benji-

i remember the 90's well. i remember watching a massive wage price spiral take place. inflation was RAMPANT, but, since CPI had been changed in 1992, the credulous fell for this unsupportable idea that we were in a "great moderation" when in fact it was just the "great manipulation".

if you think there was no inflation in the late 90's, then i hate to see what you do consider inflation.

on an apples to apples basis, the inflation of 1999 looked pretty much just like the inflation of 1979.

are you going to tell me there was no inflation in the 70's as well?

you can't have it both ways. either inflation in the 70's was actually quite moderate if you use the current methodology or inflation in the late 90's was double digit if you use the old one.

so which one do you believe oh fount of economic insight?

 
At 2/20/2011 2:24 PM, Blogger morganovich said...

PS-

we are not growing again in real terms, just as we did not grow in 8 of the 10 years from 2000-2010 in real terms.

that's what happens when you short circuit a needed correction, prevent asset reallocation, and reflate a burst bubble into a bigger bubble.

you now advocate making the same mistake again on an even larger scale.

if you are looking to create the US's own "lost decades" that's how to do it.

busts are a part of capitalism. trying to eliminate them through over liquidity just creates bigger ones and prevents real recovery from occurring.

 
At 2/20/2011 2:47 PM, Blogger VangelV said...

Dow headed for 13k this year, looks like. Inflation dead. The Fed has the field wide open for big QE.

Wow. You will get 5% by investing in the Dow. Add 2% dividends and you get 7% before taxes. For oil to do better all it would have to do is to reach $91.91. If gold goes over $14.82 you would do better. And silver will do better than that if it hits $34.84, which could be next week the way things are going.

It seems to me that your inability to think logically is coming through loud and clear. You fail to understand just how bad QE is for your purchasing power and would rather trust the bureaucrats over your own experience of reality.

Look for secular rallies in equities, properties, and maybe even commodities have life yet (higher commodity prices tend to lead to gluts, however).

We spent more than $500 billion and have yet to get the supply of light sweet crude to exceed the 2005 level. We see gold miners struggle to maintain production and have seen a major collapse in South Africa. Those old heap leach operations discovered in the early 1980s have had their run and are now being wound down. High-grading has done a huge amount of damage to what used to be very high quality reserves. That means rising costs and little in the way of growth. While we should see some very good and profitable mines in the future the will not be enough to offset demand growth. That means that a price collapse is only likely if we see a massive economic contraction like the one we experienced from 2007 to 2009. That would not be good for the Dow.

Total stress on the economy? Decreasing--we are deleveraging. If we can get inflation up into the 4 percent range, we would delever that much faster.

There are so many things wrong with your statement that I do not know where to begin. How is it that you can remain so ignorant after all these years?

 
At 2/20/2011 2:53 PM, Blogger VangelV said...

BTW, just back from Thailand, much new construction in rural areas, and japan has advised Thailand it will need 700,000 skilled workers for Thai plants in next 10 years. Huge story buried--Thailand'd total pop is just 67 million.

First, I saw the same thing in 1997 right before the Baht took a 50% hit as the Thai economy collapsed. Second, Thailand does not have the same problems as the US. Note that the Japanese are not building all those new plants in the US. They are choosing Thailand because it is more competitive.

BTW, anyone who advises zero inflation should check out the woe that is Japan in the last 20 years, and bond buyers expect another decade of inflation, at least.

First, Japan had a massive stimulus program that kept the economy mired in a slump. Had the BoJ allowed the bad businesses to go under the country would have been doing fine. There is a lesson there for the US if you can figure it out.

Second, the Japanese worker did fine. If you had a job you saw a massive increase in purchasing power as real wages went up and your savings could buy you more. That is not the case for the US, where the debt is held by foreigners who are now expecting higher rates if they are to roll over their treasury holdings. That is a big problem for your future purchasing power and your bond holdings.

 
At 2/20/2011 3:40 PM, Blogger VangelV said...

Of course we have can have good rallies in equities and property, yet low inflation. Maybe you are too young to remember the 1990s.

Funny how you picked the peak of the market as your end point. And funny how a 26% decline in purchasing power is not considered meaningful. If you really expect a replay of the 1990s then you should be expecting a 300% increase over a ten year period. That is a lot more than the 5% increase you are calling for over the next year.

QE failure? Look at Dow since QE2. Look at rising output. The employment figs from household surveys are very good.

By having QE2 the Fed admitted that the first attempt was a failure. The call for QE3 will be a signal that QE2 also failed. And so on...

The ongoing global boom was interrupted by property bust in the USA, and then subsequent global recession (aided by dufus central banks, who were not aggressive enough in stimulating).

Wow. Another ignorant statement that shows just how clueless you really are. The 'boom' was created by huge liquidity injections by the central banks. The economic contraction was the inevitable outcome. But if you want to be honest you cannot ignore the effect of reduced oil production capacity.

But the ongoing global boom will now continue.

No. You have riots everywhere as food and fuel inflation is taking its toll. I suspect that demand will tank for a number of commodities but that one of the unexpected outcomes may be a rise in USD terms as more and more countries use their reserves to feed their people rather than risking a USD collapse that leaves them with nothing to show for all those exports. Look for some problems in China, Pakistan, North Africa, and even Europe. And if things continue as they are we will be looking at riots in the US. QE3 may be a lot closer than you think.

 
At 2/20/2011 4:05 PM, Blogger Buddy R Pacifico said...

"... the most meaningful and relevant measure is "total trade" and not the relatively meaningless current account "trade deficit" for goods and services (which is exactly offset by a capital account surplus)."

The capital account surplus really means that ownership of capital to loan out has been transferred to the trade creditor nation. So, combining imports and exports into a neat trade package means the loss of capital ownership, by the U.S., is hidden even more.

The net result is the former capital of the capitalists makes the round-trip back as loans. Further, if the creditor country is communist, then the tables are turned, because the communists have growing control of the essential ingredient of capitalism.

Yes, the capital has returned but its ownership has changed and the loan committee could be difficult to deal with.

Please explain to me if I am wrong!

 
At 2/20/2011 6:50 PM, Blogger VangelV said...

you now advocate making the same mistake again on an even larger scale.

That is what most economic illiterates are pining for; the same mistake on a larger scale so that they can get some of their losses back. They fail to understand the real problems that the media ignores and don't really care to hear any real news about the real economy. Had they cared they might not be so optimistic given the revelation by Allan Ableson that, "The average homeowner with a mortgage...has a scant 2.6% equity in his house, and the already towering delinquency and foreclosure rates seem headed for a new thrust upward, with interest rates creeping up and jobs remaining anything but easy to come by." Or that, "that demand for mortgages has sagged to a 27-month low."

There is more, particularly about the discrepancy of data reporting. Ableson reports that the National Association of Realtors claims that existing-home sales fell by 5% last year. But CoreLogic, a data collection company reports a sales decline of 12% from the 2009 total. The difference of reported inventory of unsold houses is also huge. The Realtors number is about nine months worth of supply; CoreLogic reports 16 months. In case you are wondering, seven months is about normal.

CoreLogic is predicting a y-o-y price decline of around 10% to show up by the end of the spring, not exactly a strong basis for a sound and sustainable recovery. Expect by that time to have our friend screaming for QE3 and QE4.

 
At 2/20/2011 7:39 PM, Blogger Che is dead said...

"The net result is the former capital of the capitalists makes the round-trip back as loans."

No, it could make the "round-trip" in the form of a direct investment such as a new BMW or Toyota plant. It could be a real estate purchase or simple stock purchase. It could be the purchase of corporate debt which finances the expansion of a U.S. corporation. It could be an investment in a venture capital firm that helps to finance the next Google or Facebook.

 
At 2/20/2011 8:00 PM, Blogger Buddy R Pacifico said...

This comment has been removed by the author.

 
At 2/20/2011 8:05 PM, Blogger Buddy R Pacifico said...

Che Is ...,

You are correct that some of the new found capital for foreign creditors could be investments. The essential point is that the trade deficit, for the U.S., is a transfer of capital to the nation with the trade surplus.

The bigger the trade deficit, the bigger the transfer of captial to the trade surplus nation. This may not worry you, but it is worrisome to many, especially if the trade surplus nation is communist.

 
At 2/20/2011 8:49 PM, Blogger Benjamin said...

Vange-

You are totally in error regarding Japanese wages. They are hitting 20-year lows, and the outlook is grim, grim, grim.

http://www.npr.org/blogs/money/2009/08/japanese_wages_hit_20year_low.html

Tight money just does not work, as a practical matter. Much like the gold standard.

I take it you have no formal training in economics.

 
At 2/20/2011 11:08 PM, Blogger morganovich said...

benji-

thank you.

i have not laughed so hard in a long time as i did after reading you accusing someone else of not having an understanding of or training in economics.

that was side splitting.

 
At 2/21/2011 2:07 AM, Blogger Benjamin said...

Morgan-
Hey, the feeling is mutual.

 
At 2/21/2011 10:14 AM, Blogger morganovich said...

then enlighten us oh superlatively educated one:

what impressive economics training and education do you posses?

show me yours and i'll show you mine.

 
At 2/21/2011 2:37 PM, Blogger Benjamin said...

Morgan-
An argument should be judged on its merits, not on the rhetoric, or arguer.

My masters, of many eons ago, was in Public Policy, and the thesis was on inflation fighting. This was in the 1970s.

Since then, I have authored two books for Bloomberg Press, under the name Benjamin Mark Cole.

All of which counts for nothing. I am well versed in modern-day economics, and studied heavily Friedman, Keynes, Scott Sumner, energy markets and Wall Street. So what--other people have studied the same topics, and come to the same or different conclusions.

My views may be different than yours, and that's fine--democracy and debate require viewpoints.

However, it is rude of you to suggest that merely because I have different views than yours, I am uneducated. You should concentrate on the merits of our disagreements.

 
At 2/21/2011 2:55 PM, Blogger VangelV said...

Since then, I have authored two books for Bloomberg Press, under the name Benjamin Mark Cole.

Have to love the irony. An author who argued that analysts had no clue what they were doing is arguing for government analysts who also have no clue what they are doing.

How the hell does someone who is as clueless of economics as you are get to write books that deal partially with the subject?

 
At 2/21/2011 2:55 PM, Blogger Rick said...

This comment has been removed by the author.

 
At 2/21/2011 2:56 PM, Blogger VangelV said...

However, it is rude of you to suggest that merely because I have different views than yours, I am uneducated. You should concentrate on the merits of our disagreements.

I agree on the credentialism part. I think that our friend was just confused by the stupidity of your arguments and assumed that you are an uneducated simpleton. It seems that he has underestimated you because you are something worse, a naive Keynesian.

 
At 2/21/2011 2:57 PM, Blogger Rick said...

"As Dan points out, when it comes to measuring economic performance of the U.S. economy, the most meaningful and relevant measure is "total trade" and not the relatively meaningless current account "trade deficit" for goods and services (which is exactly offset by a capital account surplus). It's unfortunate that the total volume of international trade doesn't get more attention. Thanks for Dan Griswold for making the case."

To me it is unfortunate that professors in US universities adhere to positions that are essentially destructive to their own country, its economy, its people and to democracy and worldwide stability in favor of totalitarian regimes like China.

Total trade numbers are only meaningful if parties involved have the same currency. However, even in this case imbalances can be caused as it has happened in EU, with the North selling and the South buying. Actually, for the total trade number to make any sense, economic and fiscal policies must be identical in all parties involved.

I wonder, really wonder, what is the hidden agenda here. It cannot be plain lack of understanding of basic concepts.

 
At 2/21/2011 4:26 PM, Blogger Benjamin said...

Vange-

I often think you start from a premise, then find facts to agree with your premise.

Both private and government economists have extensively reviewed the ways in which inflation is measured, an always-controversial topic. Across ideological lines, many have concluded that, if anything, official measures overstate inflation. I have provided links before.

I am not a Keynesian, and have argued to cut federal outlays to 16 percent of GDP, and read closely Scott Sumner's blog, as I would advise you.

I do argue now for QE, and it appears to be working in the USA. Tight money has suffocated Japan.

BTW, such conservative economists as John Taylor and Milton Friedman argued for QE in Japan, so I feel I am in good company.

Rather than insults, why not try to diversify your rather limited perspectives into modern-day economics?

 
At 2/21/2011 5:29 PM, Blogger Ron H. said...

"I agree on the credentialism part. I think that our friend was just confused by the stupidity of your arguments and assumed that you are an uneducated simpleton. It seems that he has underestimated you because you are something worse, a naive Keynesian.

This is great stuff! How fitting! I hope you don't mind if I save it to reread later when I'm feeling gloomy. It should give me a good laugh many times.

 
At 2/21/2011 6:00 PM, Blogger Ron H. said...

Benji

"My masters, of many eons ago, was in Public Policy, and the thesis was on inflation fighting. This was in the 1970s."

You have mentioned this before, and I still can't reconcile the diametrically opposed notions of inflation fighting, and quantitative easing. Those concepts must have different meanings in Berkeley. It is probably too late, but you should have long ago considered asking for your money back.

 
At 2/21/2011 6:34 PM, Blogger Ron H. said...

Buddy, your concern is a common one, but I believe it is groundless.

When you buy something from a Chinese company, you give them USD for the goods you receive. The beauty of this, is that they can represent whatever the holder wishes them to be. You wanted them to represent, for example, a new TV. You traded the dollars for the TV, and you no longer own them. As you would say, the ownership has changed. That's as it should be in a voluntary exchange. The ownership of the TV has also changed. You won't run out of capital, as you create more every time you go to work.

You seem to be concerned that someone in China now owns the dollars, and I don't think you should be. They can exchange them for anything that can be purchased with USD. Some are used for the items Che mentioned, as well as goods made in the US - there are SOME US exports to China - and for US treasuries, those loans you dread.

It seems kind of ironic that a communist country is engaging in such capitalist activities, doesn't it?

If you are concerned about the level of US debt, and you should be, then you should blame the borrower, not the lender. Just as you won't blame your bank if you max out your credit card.

This circulation of USD isn't really all that much different from you spending dollars at your local grocery store. Once you trade them for groceries, you shouldn't worry about how the grocer uses them. He might spend them for any of the purposes mentioned, including buying US treasuries.

 
At 2/21/2011 7:08 PM, Blogger morganovich said...

benji-

"However, it is rude of you to suggest that merely because I have different views than yours, I am uneducated. You should concentrate on the merits of our disagreements."

now that is worth a massive belly laugh. if you go back and read the comments, you will see that i was responding to your accusation that vangel had no economics training.

here:

benji- (to vangel)

2/20 - 8.49

"I take it you have no formal training in economics."

and this of course was after you comment to me:

"Maybe you are too young to remember the 1990s. "

which was another of your attempts at "credentialism", which is an argument type you try to use all the time when linking to that ludicrous boskin report after you run out of actual arguments about inflation.

so pick a side of the street and live on it. you are accusing me of what you yourself have been doing all along.

my response was:

"i have not laughed so hard in a long time as i did after reading you accusing someone else of not having an understanding of or training in economics."

which, clearly, was a response to your attempt to impugn another's credentials.

whatever your background, if you studied more econ than vangel, you sure retained less. while i disagree with him on a gold standard, his arguments are far more lucid and grounded in theory and fact than anything i have ever seen from you.

also, frankly, i do not believe that you are benjamin mark cole.

i have heard you discuss that you make furniture.

BMC is a financial journalist of several decades and has been an editor at major financial publications. i just read several of his excerpts. you sound little like him and display none of the sophistication or writing ability.

people who have studied economics use certain terms and couch arguments in certain ways, none of which you do. simply put, you do not write like someone who has written for a living.

if you did in fact write those books, a fact i still severely doubt, then you have suffered a serious reduction in cognitive and literary ability since then.

it's possible i am wrong and i lack any concrete facts, but i think you are bluffing.

as i promised to provide my credentials as well, i have degrees in economics, political science, philosophy, and physics, all from brown.

i have worked for 17 years as a currency trader, equity analyst, venture capitalist, and have helped found several businesses among them the hedge fund (Manchester explorer, co founder) that i run to this day. i sit on several boards and am an active angel investor.

but i agree that credentials are not the correct form of debate. i only questioned yours because you questioned those of others.

 
At 2/21/2011 7:22 PM, Blogger morganovich said...

"Both private and government economists have extensively reviewed the ways in which inflation is measured, an always-controversial topic. Across ideological lines, many have concluded that, if anything, official measures overstate inflation. I have provided links before."

"BTW, such conservative economists as John Taylor and Milton Friedman argued for QE in Japan, so I feel I am in good company"

here's some more credentialism and appeal to authority as a substitute for the actual arguments and data that you claim to prefer.

seriously, how can you argue against credentialsm and then post things like that on the same thread?

i also note that even if you are telling the truth about being benjamin mark cole, you lied about authorship.

BMC edited "the new investor relations", he did not author it.

that seems like a mistake than the actual editor would not have made in describing his contributions.

this makes me even more suspect about your claims.

 
At 2/21/2011 7:31 PM, Blogger morganovich said...

here's the TOC for "your" book:

http://www.amazon.com/New-Investor-Relations-Expert-Perspectives/dp/1576601358/ref=sr_1_2?s=books&ie=UTF8&qid=1298334100&sr=1-2#reader_1576601358

note that each section was authored by someone else.

big lies always unravel from little threads...

 
At 2/21/2011 9:30 PM, Blogger VangelV said...

Both private and government economists have extensively reviewed the ways in which inflation is measured, an always-controversial topic. Across ideological lines, many have concluded that, if anything, official measures overstate inflation. I have provided links before.

And I have provided you with links that show that when you compare the new changes to the methodology to those used in the 1970s you will see very little difference in the inflation rate today from what was typical in the 1970s. Now you can get all of the 'private economists' touting bonds, equities, and other instruments that would suffer from an uptick in the reported inflation rate or a number of Fed bought economists but that will not change the facts. We had hundreds of government and private economists telling us that there was no IT bubble and that there was no housing bubble. But there were bubbles, just as the economists who are reporting the higher inflation said that there were.

You can't use the opinions of the same idiots who got everything wrong as support for a position that is so obviously wrong, particularly when the same data run using the old methods yield totally different conclusions. Now you could try to convince people that the 1970s were not inflationary but I doubt that you will improve your credibility.

I am not a Keynesian, and have argued to cut federal outlays to 16 percent of GDP, and read closely Scott Sumner's blog, as I would advise you.

I have always found that academics like Sumner were too arrogant about knowing what governments and individuals should do. I have read some very interesting comments from him but I often find that he is too much of a statist for my taste.

I do argue now for QE, and it appears to be working in the USA. Tight money has suffocated Japan.

Japan borrowed massive amounts of money that is spent on massive infrastructure projects yet it did not recover. What you fail to understand is that in order to have a true and sustainable recovery you need a liquidation of malinvestments, which is what the QE programs have prevented. The US is going down the same path as Japan but is a bit better off due to more favourable demographics. Of course, both countries are bankrupt, tax far too much, and spend far too much but that is a subject for another posting. My kids are calling me and it is time that I went and helped them with their reading assignments.

 
At 2/21/2011 9:33 PM, Blogger VangelV said...

BTW, such conservative economists as John Taylor and Milton Friedman argued for QE in Japan, so I feel I am in good company.

The kids are brushing their teeth so I have a few more minutes. What others propose is not important. Japan borrowed and spent trillions but the economy is still down. That happened because it did not permit liquidation, as the market would demand before there could be a true recovery.

And if QE worked why did the Fed need QE2?

Rather than insults, why not try to diversify your rather limited perspectives into modern-day economics?

I have read 'modern-day' economists. But the problem is that most are idiots who are just advocates and panderers to power. I prefer the ones who have sound theory behind them and have a record of getting things right. You might try reading them.

 
At 2/22/2011 12:18 AM, Blogger Benjamin said...

Morgan-

Yes, I edited I.R., which means I had to re-write every effing chapter.

Next time you are in Los Angeles, I would be happy to meet you.

Obviously, I use a more conversational, glib style commenting on a blog than writing a book or column. This is relaxation for me.

I was never an editor at major financial publications, always a reporter. I might have an editor title here or there.

I make furniture now. See sportsbartables.com. I am retired from journalism, except for some freelancing. I also have farmland in Thailand. I own warehouse space in Los Angeles--so I have my fingers in a lot of pies. I do some PR for architects. I like to think that gives me a broad view of things.

You are correct in regard to my comments about Vange--I should not ask him about his credentials--it is just that his certitude about rather ambiguous topics strikes me as amateurish. He has his Austrian school shibboleths, and everybody else--Milton Friedman, John Taylor, Scott Sumner, Paul Krugman--is an "idiot."

Okay, so we disagree about inflation. I believe the methods of measuring inflation have to be updated, and possibly we overstated inflation before, and still are. Some serious guys published a peer-reviewed paper for American Economic Review recently saying the same thing. Yes, they could be wrong, I could wrong. The staffs of the Fed Reserve and the FOMC, and the regional fed banks (such as St. Louis and Cleveland) could be wrong. The BLS could be wrong too.

Then, that would mean our living standards are falling well below that of Europe--except you say they are all wrong too about inflation in Europe.

Jeez, Morgan, sooner or later, your conspiracy theory seems to fall apart. Everybody is wrong except for you. Everybody is the Western world, all official sources, are understating inflation, and smart private-sector economists are similarly duped.

In my world, prices have been going down. Rents are down, wages are down, some inputs are down. My prices for tables are very soft.

Well, in one way I am sure you are a lot smarter than me--you picked a much better profession, and sound like you made a lot more money than me.

 
At 2/22/2011 8:22 AM, Blogger VangelV said...

I make furniture now. See sportsbartables.com. I am retired from journalism, except for some freelancing. I also have farmland in Thailand. I own warehouse space in Los Angeles--so I have my fingers in a lot of pies. I do some PR for architects. I like to think that gives me a broad view of things.

Actually, I find your view of things very mainstream. You keep repeating the same claims made by the idiots at the Fed and tend to ignore the fact that the mainstream analysts and economic commentators had a terrible record of prediction.

You are correct in regard to my comments about Vange--I should not ask him about his credentials--it is just that his certitude about rather ambiguous topics strikes me as amateurish. He has his Austrian school shibboleths, and everybody else--Milton Friedman, John Taylor, Scott Sumner, Paul Krugman--is an "idiot."

But Krugman is an idiot. Even Keynesians can see that now. And the fact that he has a PhD and a Nobel shows that the economics profession is not very credible when it comes to dealing with reality. I prefer the Austrians because they get it wrong far less and have sound theory that makes them much more accurate when making predictions and explaining what is going on. The mainstream economists were laughing at Ron Paul when he talked about the housing bubble that they and the Fed never saw coming. The mainstream economists and financial analysts shouted down Peter Schiff when he was telling people to dump Citi, Bear, Lehman, and other financials because of the toxic paper that they held. They laughed at Faber when he pointed out that American infrastructure had a very third world feel about it. But the fact that they could not not see things as they were did not change reality. As usual, the Austrians saw it coming and had an explanation that described what would happen and why.

So I see no need to take a broad view that is wrong but more acceptable to the mainstream. In fact, my concern is about making money in the real world, not protecting some academic reputation by going along with the mainstream. That means that while you are ignoring inflation and touting the Dow I will be betting on the depreciation of fiat currencies and sticking with my gold, silver, oil, agriculture plays. While you are hoping to make 5% I will take 50% without concern about how my views are seen by the mainstream commentators who cannot think for themselves and would rather be popular than right.

 
At 2/22/2011 8:35 AM, Blogger VangelV said...

Let us go over this again.

Benji:

Dow headed for 13k this year, looks like. Inflation dead. The Fed has the field wide open for big QE.

Vangel

Wow. You will get 5% by investing in the Dow. Add 2% dividends and you get 7% before taxes. For oil to do better all it would have to do is to reach $91.91. If gold goes over $14.82 you would do better. And silver will do better than that if it hits $34.84, which could be next week the way things are going.


Let me see. Only two days have passed and silver seems to be half way there already. The oil contract at Cushing is above $91.91 with Brent being at $107. All the gains you were looking at for the Dow over the next year could come in the commodity area in the next week.

I think that those rose coloured glasses need to come off and you need to start seeing what the real world is really like. Here being in the mainstream does not count as much as being right.

Now there may be an opportunity for the degenerate gamblers who care more about short term trades rather than primary trends. I am sure that the idiots at the Fed and the other CBs don't like the idea of gold and silver being so high. It is easy for them to act decisively and have the exchanges modify margin requirements as they go long. So we could see a rout in the futures markets that could last for a while. But the problem for the banks is that the real world ultimately cares about real things. Try as they might they cannot add material physical supply of gold, silver, oil, wheat or corn. That means that we could see a failure to deliver problem appear within six months or so, particularly in the silver pits. That means that one is better off owning physical silver, gold or shares in energy or ag stocks rather than the crap that you are recommending.

 
At 2/22/2011 8:42 AM, Blogger VangelV said...

Okay, so we disagree about inflation. I believe the methods of measuring inflation have to be updated, and possibly we overstated inflation before, and still are. Some serious guys published a peer-reviewed paper for American Economic Review recently saying the same thing. Yes, they could be wrong, I could wrong. The staffs of the Fed Reserve and the FOMC, and the regional fed banks (such as St. Louis and Cleveland) could be wrong. The BLS could be wrong too.

But if you update the methods and do not apply it to past prices you will not be able to do a fair comparison. As I noted, the same methods give you similar results as the 1970s.

Then, that would mean our living standards are falling well below that of Europe--except you say they are all wrong too about inflation in Europe.

The European bureaucrats use lousy methodology just as the BLS does. There is no way to do a proper comparison unless the same methods are used in the same way.

Jeez, Morgan, sooner or later, your conspiracy theory seems to fall apart. Everybody is wrong except for you. Everybody is the Western world, all official sources, are understating inflation, and smart private-sector economists are similarly duped.

Actually, there is an impartial judge; the market. When you guys were saying that there was no housing bubble the market showed that you were wrong. You guys are saying that there is no bond bubble because inflation is mild. The market will show you to be wrong again. You are saying that the Dow is a good play because it will go up by 5% and there is no inflation to worry about. The market will show you just how wrong you are about that because the Dow will under-perform inflation plays.

In my world, prices have been going down. Rents are down, wages are down, some inputs are down. My prices for tables are very soft.

Property taxes are up. Food is up. Insurance and tuition prices are up. Health care is up. Energy is up. Of course, in my world people eat, use health care, drive and send their kids to school.

 
At 2/22/2011 10:37 AM, Blogger morganovich said...

benji-

as a said, i have no facts on your identity, merely suspicions.

it seems implausible to me that people with decades of journalistic and business experience write as badly as you do with sentence fragments, limited vocabulary, and erratic punctuation or that such people would feel compelled to ejaculate "die recession! die! die!" over and over again along with other such chestnuts as "inflation is deader than jmmy hoffa". these are not the phrases of an august financial journalist, nor do you ever seem to demonstrate any of the sort of insider knowledge about the markets that such an individual would posses.

it seems implausible to me that someone with such education is non conversant in basic economic concepts as you routinely are. you do not write like someone familiar with economic terminology.

then, you hide behind precisely the appeals to authority you purport to disdain and accuse others of "conspiracy theory" when they lay out simple, provable facts about CPI because you are unable to address them directly because, as far as i can tell, you do not understand the argument, a fact that seems incompatible with masters level work on inflation.

further, it is hardly a "conspiracy theory" to suggest that the employees of a government might seek to slant economic statistics to their benefit. such practices are common all over the world and i suspect you know it.

so, perhaps before yelling "tin foil ghat time" because you are out of your depth in an argument, you ought to try working to understand it so that you can address it on its face as opposed to the ad hominem and appeals to authority you seem to choose instead.

so, if i have wrongly accused you of misrepresenting your background, i apologize, but i am by nature and training (i learned the equity markets from a short seller) skeptical, and your claims set off all manner of alarms.

it seems you know manny asensio, so i will ask him if he can validate your claims.

i am open to being wrong about this, but at this point remain unconvinced. therefore, i will do what sensible people do in such a situation and seek more data.

perhaps you should consider doing the same around CPI...

 
At 2/22/2011 12:53 PM, Blogger VangelV said...

it seems implausible to me that people with decades of journalistic and business experience write as badly as you do with sentence fragments, limited vocabulary, and erratic punctuation or that such people would feel compelled to ejaculate "die recession! die! die!" over and over again along with other such chestnuts as "inflation is deader than jmmy hoffa".

This part does not bother me. Many people write sloppily on blogs and do not care much about spelling errors or hastily written sentences that may not make sense due to incomplete edits. My problem is with the lack of knowledge of the subject and the inability to account for facts that show that those that he puts his faith in are incompetent charlatans.

these are not the phrases of an august financial journalist, nor do you ever seem to demonstrate any of the sort of insider knowledge about the markets that such an individual would posses.

You overestimate the knowledge of make believe experts. People who really know and understand the markets do not write about them or work for the central banks. They get rich by taking advantage of that knowledge.

it seems implausible to me that someone with such education is non conversant in basic economic concepts as you routinely are. you do not write like someone familiar with economic terminology.

Come now. Don't you remember your economics professors in university? Most of them were idiots who had no clue about the real world. The people they teach turn out as they do and become spinners of narratives rather than seekers of truth. Financial commentators need no demonstration of any competence or a record of being right. Instead they need to be able to sell the messages that they are paid to propagate. For such people knowledge just gets in the way.

 
At 2/22/2011 12:59 PM, Blogger VangelV said...

then, you hide behind precisely the appeals to authority you purport to disdain and accuse others of "conspiracy theory" when they lay out simple, provable facts about CPI because you are unable to address them directly because, as far as i can tell, you do not understand the argument, a fact that seems incompatible with masters level work on inflation.

It is very clear that he does not understand the argument. He claims that changes are necessary without understanding that changes in methodology have to be applied to the previous data sets so that a meaningful comparison can be done. Do you recall him ever asking about why the methodology is not applied to the old data or point out that without equal treatment there is no way to do a valid comparison of general conditions? I don't.

Because our friend does not understand and he is out of his depth he never deals with what is essential and chooses to support his argument with appeals to authority and ad hominem attacks.

 
At 2/22/2011 3:08 PM, Blogger morganovich said...

"Come now. Don't you remember your economics professors in university? Most of them were idiots who had no clue about the real world."

it's not the content to which i am objecting nor even the illogic. it's the lack of economic jargon and a failure to understand the basic concepts of micro and macro econ that i find suspicious.

those with academic econ backgrounds may live in an ivory tower of assumptions, but they still use and understand a certain set of terminology in their discourse. you'll never catch benji uttering "marginal propensity to consume" or even indicating that he knows how the GDP deflator or even simple inflation works(as demonstrated on the food prices thread this AM).

these are things i would have expected to see even from the freshman econ sections i TA'd, much less someone who has done masters level work.

journalists employ better verbs and a punchier turn of phrase than we see from our correspondent.

you don't suddenly lose the language skills and habits of decades because you are commenting on a blog nor go from writing the financial column for a major paper to ejaculating "die recession! die! die!" over and over as if you have tourettes unless you have been kicked in the head by a horse or some like misadventure.

this leaves me skeptical of his biographical claims (though admittedly without any hard evidence).

do you have any reason to suspect he is telling the truth apart from a lack of respect for the capabilities of journalists?

 
At 2/22/2011 3:21 PM, Blogger Ron H. said...

morganovich

"This part does not bother me. Many people write sloppily on blogs and do not care much about spelling errors or hastily written sentences that may not make sense due to incomplete edits."

I doubt that Vangel had you in mind when he wrote this, so you probably shouldn't take it personally.

I've already explained on another thread that I don't believe you type with two mittens. :-)

 
At 2/22/2011 3:38 PM, Blogger VangelV said...

it's not the content to which i am objecting nor even the illogic. it's the lack of economic jargon and a failure to understand the basic concepts of micro and macro econ that i find suspicious.

those with academic econ backgrounds may live in an ivory tower of assumptions, but they still use and understand a certain set of terminology in their discourse. you'll never catch benji uttering "marginal propensity to consume" or even indicating that he knows how the GDP deflator or even simple inflation works(as demonstrated on the food prices thread this AM).


I agree that he does not use jargon but don't you make a conscious effort not to? I know that I often have to reword many of the things that I want to say because I am usually writing for people who have not read much economics. I only use terms such as 'malinvestment' or 'crack-up-boom' because there aren't simple substituttes to them and expect the reader to make some kind of effort every once in a while. But in most cases plain words are more than adequate to replace jargon that only hides ignorance to begin with.

this leaves me skeptical of his biographical claims (though admittedly without any hard evidence).

Perhaps I am more cynical than you are. I expect that most people who write books on complex topics are more likely to be charlatans rather than wise experts.

 
At 2/22/2011 8:04 PM, Blogger morganovich said...

v-

i agree with you about the commonplace charlatanry of financial book authors, but still, they tend to have at least a basic fluency in communicating ideas and an ability to write coherently. it's often their only actual skill.

i do not see evidence of such from benji.

i suppose it's possible he is dumbing down his discourse, but it still strikes me as implausible that he would go so far in that direction. it's one thing to speak to your audience, but what incentive is their to speak at a level well below it?

read some excerpts from BMC's work. there is not even a passing similarity with benji's posts, not in grammar, diction, scansion, or vocabulary.

it's one thing to try to write plainly, but another to misuse and fail to understand basic economic terms and concepts while blundering through language.

 
At 2/22/2011 8:22 PM, Blogger Benjamin said...

I understand the changes in methodology, the hedonics and all the rest. I was studying the CPI back when there were discussions about how to measure housing costs, in a time of 18 percent mortgages--are you buying a house every month? I actually participated, in a minor way, in those discussions (1980s).

Yes, the CPI was altered to try to also measure improving product quality, and consumer choices.

It is not I, but Vange and Morgan who seem to blunderbuss their way through the economic literature and news, forcing facts to fit your notions.

Your conspiracy theories about inflation are laughable and amateurish, as are your doomsday predictions.

Hey, the Dow has just about doubled, and world stock markets even better, while you have been in gloomypants-land.

I strongly suspect as investors you are regulars in the Loser's Lounge.

 
At 2/23/2011 10:10 AM, Blogger VangelV said...

i agree with you about the commonplace charlatanry of financial book authors, but still, they tend to have at least a basic fluency in communicating ideas and an ability to write coherently. it's often their only actual skill.

i do not see evidence of such from benji.


I see no such evidence either. But it could be that Benji's writing skills and logic are a lot closer to that of the true BMC than the impression that you get from the books. How is that for a very scary story that totally discredits self-proclaimed experts?

 

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