Saturday, May 07, 2011

Amazing U.S. Manufacturing Productivity Gains

We constantly hear about the “decline of U.S. manufacturing” and how America “doesn’t make anything anymore.”  The reality is that the United States produces a lot of manufacturing output.  In 2009, America produced more manufacturing output than the manufacturing output of the countries of Germany, Italy, France, U.K., Brazil and S. Korea combined.  And one of the reasons that America has been the world’s leading manufacturing nation for more than one hundred years is the continually increasing productivity of our manufacturing workers.  

The chart above helps to tell the story of rising worker productivity in America’s manufacturing sector based on new GDP (value-added by industry) data released last week by the Bureau of Economic Analysis for 2010.  Between 1947 and 1980 real manufacturing output per worker doubled from $35,000 to $70,000, and since 1980 output per worker has more than doubled to almost $150,000 in 2010, a new record high.  The ongoing gains in the productivity and efficiency of American manufacturing workers allow the U.S. to produce ever greater amounts of manufacturing output with fewer workers, and that’s a sign of a thriving and vital industry, not an industry in decline.  

Originally posted on the Enterprise Blog.   

MP: In 2010, manufacturing output per worker increased to almost $149,000 from $135,000 per worker in 2009, for a 10.3% increase.  That's the largest annual increase in U.S. manufacturing worker productivity going back to at least 1947, and follows a 7.85% increase in 2009. 

47 Comments:

At 5/07/2011 6:59 AM, Blogger Nigel Sedgwick said...

Is that value added per worker or is it gross output per worker?

If the latter, given the issue of sub-component assembly done abroad, does it support your argument?

Best regards

 
At 5/07/2011 7:03 AM, Blogger Mark J. Perry said...

If you follow the link to the BEA data, you'll see that it's value added, and I have added that to the post.

 
At 5/07/2011 8:24 AM, Blogger W.C. Varones said...

We call this Rise of the Machines, and it ain't good for the working and middle classes. Who needs labor?

 
At 5/07/2011 8:40 AM, Blogger Rufus II said...

This is, obviously, Great News in the "long run," but it does add stress to the "manufacturing workers" in the short run.

Interesting Consumer Credit Numbers, yesterday. CC was Up $6 Billion, and change, and about 80% of that was "Student Loans."

There's no going back. They don't need "Bubba" to lift that wheel up, and put it on the chassis any more. He's going to have to learn how to operate, program, repair the computer/robot that took his job. And, that's all there is to that.

 
At 5/07/2011 9:30 AM, Blogger VangelV said...

I hate to spoil the party but there are a few problems here. First, any statement coming from a government source with the word 'REAL' in it is likely to be false because of the underestimation of inflation. Second, the per worker increase does not change the fact that the number of workers is in rapid decline, which means that total output is not rising as shown. Third, when you have the government purchasing such a huge amount of goods at prices not set by the market and indirectly or directly subsidizing some activities (aircraft, military equipment) it is easy to come up with a number that does not reflect reality.

What I like to look at the part of the economy that is consumed by the government. That is on the rise. I also like to see what is happening to the country's balance sheet. That is deteriorating. I also want to look at the regulatory trends and the currency. Both of those are negative.

So you will excuse me Mark and the rest of you naive optimists but I don't buy the story as presented. While there have been clear improvements and while there are clearly some very good areas of the economy, the aggregate looks very bad. With the Euro zone banks on the verge of collapse, Japan in trouble because of its earthquake/tsunami issues, China having trouble controlling inflation and in dire need of a pull-back, and serious problems in the food sector, the US is one black swan away from another major correction. After the corrections in the futures markets run their course we could see gold at $2,500, oil at $150 and silver at $75. (The PM stocks peaked sometime around April and are off by around 12%. When they start back up again some time in the next ten weeks, after it is clear that the QE2 activities will not end it will signal another leg down.)

The biggest problem facing us is still hyperinflation. Each bout of perceived 'deflation' will be fought by another injection of liquidity and more transfer programs. Eventually the sheer weight of the debt and transfer programs will destroy what is left of the overtaxed productive sector and the American standard of living will collapse to what it should be.

 
At 5/07/2011 10:19 AM, Blogger Dr. Tax in Sacramento said...

There are probably two factors here that are important - one obvious and the other less so. The advances in technology have been written about extensively. But if you also look at the decline in union membership over the period there is certainly an increase in productivity that parallels the decline.

Contrary to the gloomers here - this is fundamentally good news.

 
At 5/07/2011 10:35 AM, Blogger Nigel Sedgwick said...

Many thanks for the clarification, and putting it in the main posting.

[Aside. Earlier, I did follow the link, and found a page of (pretty much just) some 41 other links to tables (and some links to combinations). Some days, you know, I am just too lazy.]

Best regards

 
At 5/07/2011 12:59 PM, Blogger Benjamin said...

It is wonderful what the private sector can accomplish.

Anything we can do to shrink our federal civilian and military agencies will boost the private sector, and lead to greater prosperity and security for the USA.

 
At 5/07/2011 2:32 PM, Blogger Jason said...

My opinion: Anytime you see accelerating trends, you should be weary. Accelerating thrends either indicate a problem with the data, or the data indicates a problem on the horizon.

I am not so much concerned about increasing productivity as acceleration in increases.

 
At 5/07/2011 3:02 PM, Blogger Benjamin said...

Thomson Reuters/Jefferies CRB Index (TRJ/CRB)

For more than 50 years, this world-renowned index has served as the most widely recognized measure of global commodities markets. As a benchmark, the Thomson Reuters/Jefferies CRB Index is designed to provide timely and accurate representation of a long-only, broadly diversified investment in commodities through a transparent and disciplined calculation methodology.

The history of the Thomson Reuters/Jefferies CRB Index dates back to 1957, when the Commodity Research Bureau constructed an index comprised of 28 commodities that made its inaugural appearance in the 1958 CRB Commodity Year Book.

I realize there are all manner of indices.

This above commodities index says that commodities, as a group, are about where they were 2006, price-wise.



The DJIA where it was in 1999.

We have declining labor costs.

If true, we have real estate dead, maybe at 2005 prices.

Commodities now going down but where they were in 2006.

Yet many influential economists and pundits, and some dogs-in-the-manger are screaming about an too-liberal money supply.

You wonder how Japan stayed with a crummy monetary policy for 20 years?

I think I am getting a clue.

 
At 5/07/2011 5:15 PM, Blogger morganovich said...

notice how the slope of this line changes in 1992 when they changed the way inflation was calculated.

this is less a 20 year productivity miracle than a statistical charade.

oh, and benji, as ever you are way off on your facts.

the continuous commodity index ended 2006 at 394. it is currently 632, up 60% since then (over 10% a year)

it's a much more inclusive index than the CRB and is based on pure commodities, not derivative ones like copper, lead, and steel scrap or produced goods like oils, butter, burlap etc.

this is the better index to measure inflation.

http://en.wikipedia.org/wiki/Continuous_Commodity_Index_%28CCI%29

the log scaling in the CRB index makes it useless for that purpose.

read the construction yourself:

http://www.crbtrader.com/crbindex/spot_calc.asp

 
At 5/07/2011 7:38 PM, Blogger VangelV said...

Yet many influential economists and pundits, and some dogs-in-the-manger are screaming about an too-liberal money supply.

You wonder how Japan stayed with a crummy monetary policy for 20 years?

I think I am getting a clue.


I can assure you that you are clueless. Commodities are still way too high and prices for things that people need (food, gasoline, health care, tuition, insurance) have gone up sharply. If the market players believe that Ben is serious about ending QE2 you will see them send a signal. Given the fact that there is an election year coming and that Obama needs a reckless Fed that is what you will get. As such, you will follow the exact footsteps of Japan and will become largely irrelevant in the next decade or so.

 
At 5/07/2011 10:13 PM, Blogger Jason said...

As such, you will follow the exact footsteps of Japan and will become largely irrelevant in the next decade or so.

Van, I would agree with this statement. However, everyone else is just as reckless, just perhaps in different ways. I think politicians and central bankers have gotten too smart for their own good. The US may only become the tallest midget after the dust clears.

 
At 5/07/2011 10:50 PM, Blogger Benjamin said...

Vange-

you appear to not know the basics about japan and their monetary policy. It has been extremely tight for a generation. The yen has appreciated dramatically. Asset values have fallen by 75 percent in 20 years, and wages have been falling. The contraction is ongoing.

For whatever reasons, money is like blood to a modern economy, and they need more money and moderate inflation to thrive, Japan is an example of tight money, It fails.

A 20-year experiment with tight money has produced pessimism, and childlessness. Korea is stolen the thunder. China too. Both print money, running about 10 percent growth a year. Both have growing economies.

At a certain point, you have to toss out crypto-paleo-monetarism, and go with what works.

 
At 5/08/2011 7:51 AM, Blogger VangelV said...

Van, I would agree with this statement. However, everyone else is just as reckless, just perhaps in different ways.

It is obvious that our world is dominated by social democratic systems in which politicians meddle with the economy to benefit their patrons and their friends. We already know that such meddling leads to misallocations of resources that require serious corrections. By not permitting those corrections to happen the politicians and central banks are making the problem worse.

I think politicians and central bankers have gotten too smart for their own good.

I disagree. They clearly do what they must to further their own interests and cling on to the power that they have. But that way ends in crisis, misery, and collapse. By taking it, the politicians and central bankers have shown that they are not very smart.

The US may only become the tallest midget after the dust clears.

I doubt that. There is too much debt and too much malinvestment in the US for it to be anything but a middling economic power once the dust clears. There are too many old voters looking for breaks and handouts and too many angry young voters that are economic illiterates. The environment is changing and voters are looking for someone to promise a free lunch and state driven solutions to their problems. Look for the idiots in the Republican Party to destroy the GOP by giving in to Obama's attack on 'the rich' as they compromise and increase taxes on those earning $500K to $1 million and to extend the huge spending programs that are already threatening the financial stability of the country. Look for a QE3 to take up the slack once the current program of monetizing government debt ends. And look for the GOP to select another unprincipled clown to oppose Barrack and do its best to hand him a victory.

A promising development would have a third party candidate take on both the GOP nominee and Obama and to put forth an alternative vision based on the principles on which the country was founded. The best development would be to have independents rally to such a candidate and win. But that is very unlikely to happen and if it does not, the US is doomed.

 
At 5/08/2011 8:25 AM, Blogger VangelV said...

you appear to not know the basics about japan and their monetary policy. It has been extremely tight for a generation.

What kind of idiot are you? Interest rates hit zero in 1995 and have stayed near that low since. The fact that you consider zero percent tight shows that you have no idea what you are talking about.

Without looking at the unfunded liabilities, Japan is the world's most indebted country as a percentage of its GDP. That is not caused by a tight monetary policy but by a loose one.

Even the idiots at the NY Times get it. The fact that you don't shows just how dense you really are. For the record, I still think that you are just trying to get responses because you can't be as stupid as you would have us believe. The main reason why I respond is because there are others on this site that have similar, if not as extreme, views and your posting allow for a proper response.

The yen has appreciated dramatically.

As it should against the USD. Japan owes money to itself and runs a large trade surplus. It needs a strong yen to be able to afford to rebuild from the damage caused by earthquakes.

Asset values have fallen by 75 percent in 20 years, and wages have been falling. The contraction is ongoing.

Real wages in Japan have not fallen. Housing, which is the biggest cost for Japanese, has fallen as it should have because it was in a bubble.

And yes, the contraction is continuing as it should because what you have is a Balance Sheet Recession.

 
At 5/08/2011 8:28 AM, Blogger VangelV said...

For whatever reasons, money is like blood to a modern economy, and they need more money and moderate inflation to thrive, Japan is an example of tight money, It fails.

A 20-year experiment with tight money has produced pessimism, and childlessness. Korea is stolen the thunder. China too. Both print money, running about 10 percent growth a year. Both have growing economies.


Define what you mean by 'tight'. With government borrowing to stimulate the economy and interest rates at zero I see no way for a rational individual to reach the same conclusion as you have. Of course, I have never accused you of being rational but let me give you the benefit of doubt and ask what you consider to be a tight money policy.

 
At 5/08/2011 9:14 AM, Blogger PeakTrader said...

VangelV, it seems, you've been duped into believing the Fed should be blamed, or is equally responsible, for economic problems caused by lawyers in Washington.

Monetary policy has been offsetting failed fiscal policy.

Obviously, monetary policy is not accommodative enough without the quantitative easing (you may want to see the Keynesian Liquidity Trap).

Also, the U.S., with all its problems, is in a much better economic position than any other major economy (including China).

 
At 5/08/2011 9:34 AM, Blogger PeakTrader said...

Also, I may add, when Japan reached its economic peak, around 1990, and some estimated the Japanese economy was larger than the U.S. economy (based on PPP), although the U.S. had twice the population, Japanese were still living in small houses, driving small autos, a glass of orange juice or a steak were ridiculously expensive, etc.

China is heading in the same direction, except there will be hundreds of millions of dirt poor people to take care of. Moreover, China has given away more of its "gains-in-trade" to the U.S. and other foreign countries, which caused them to work harder for less.

 
At 5/08/2011 9:34 AM, Blogger Jason said...

I doubt that. There is too much debt and too much malinvestment in the US for it to be anything but a middling economic power once the dust clears.

My point: Middling to whom?

BRIC countries are all dependent on the US given their present economic policies. And the biggest (China) has a massive demographic problem that make ours look tame by comparison. And corruption with chronic malinvestments are everywhere in BRIC nations. Europe has an aging, declining population and massive debts in lessor countries to support the standard of living in France and Germany.

I'm not saying American policies are smart or effective, I am saying we are as bad as everyone else.

 
At 5/08/2011 9:49 AM, Blogger PeakTrader said...

The Fed doesn't, and shouldn't, micromanage the economy. It uses its crude tools to smooth-out business cycles.

The Fed has been successful in recent decades. It prevented a deep depression in the 1970s (similar to the 1870s or 1930s), engineered a disinflationary growth boom from 1982-07, and is attempting to prevent another deep depression.

The Fed's ultimate goal is to raise U.S. living standards at the fastest sustainable rate, and it has done an excellent job.

 
At 5/08/2011 1:35 PM, Blogger VangelV said...

VangelV, it seems, you've been duped into believing the Fed should be blamed, or is equally responsible, for economic problems caused by lawyers in Washington.

I don't like central planning by the Fed or by politicians. Both are incapable of handling the complexity of the real economy.

Monetary policy has been offsetting failed fiscal policy.

No, it has been allowing the failed fiscal policies to take place.

Obviously, monetary policy is not accommodative enough without the quantitative easing (you may want to see the Keynesian Liquidity Trap).

Accommodative? Why should we rob savers, workers, and investors of purchasing power to bail out idiots on Wall Street who made bad bets? Why should taxpayers cover the losses of lenders who thought that they could make a profit by lending money to people who lied about their income or job security?

Also, the U.S., with all its problems, is in a much better economic position than any other major economy (including China).

I do not see it this way. While other countries have some serious problems at least they have sufficient capital and infrastructure to produce wealth and have sufficient savings to finance investments. The US is dependent on the good will of others and is resorting to borrowing from savers in the developing world in order to finance its standard of living. That scenario does not end well for the US or for its lenders.

 
At 5/08/2011 1:54 PM, Blogger morganovich said...

v-

don;t bother trying to explain money demand to benji.

he doesn't get it.

he thinks that if you just keep printing it, people will want it.

trying to explain to him that with an aging and retiring population that actually began to shrink in size while also aging dramatically, no amount of printing was going to spur demand.

benji thinks about money in purely supply side terms which is why he misunderstands japan so completely.

 
At 5/08/2011 1:56 PM, Blogger morganovich said...

hey benji-

does this look like inflation to you?

it's 9% of household budgets.

NEW YORK (CNNMoney) -- Round-trip airfare from New York to Los Angeles. More than a dozen dinners for two at Applebee's. Two 16 GB iPod nanos.

These are just a few of the things you could have bought if you weren't spending $368.09 a month on gasoline.

Gas spending and prices by state
Gasoline prices and taxes by state
Prices at the pump can vary widely among states due to a number of factors.

That's the average amount American households spent on gas in April, according to an exclusive analysis of data by the Oil Price Information Service for CNNMoney.

The study, which compared average gas prices with median incomes nationwide, also showed that U.S. households spent nearly 9% of their total income on gas last month

that's more than double what the average American family spent just two years ago, when gas prices were hovering around $2.05 a gallon.

 
At 5/08/2011 2:04 PM, Blogger PeakTrader said...

VangelV, you're making a lot of false assumptions.

Economists can handle economics. Lawyers can't.

If it wasn't for the Fed's quantitative easings, this country would be in depression.

Raising actual output towards potential output, which the Fed is attempting, benefits the country.

Wall Street not only made a fortune on the naive economic policies of politicians, but also raised U.S. living standards in many ways, and Wall Street knew the government would bail it out.

Other countries are holding U.S. dollars and losing through currency exchange rates, interest rates, and inflation.

If it weren't for U.S. demand, our trading partners would've had slower growth.

 
At 5/08/2011 2:09 PM, Blogger VangelV said...

China is heading in the same direction, except there will be hundreds of millions of dirt poor people to take care of. Moreover, China has given away more of its "gains-in-trade" to the U.S. and other foreign countries, which caused them to work harder for less.

I take it that you have never been to China before and can't see the advances that have been made by the liberalization of the economy. The advances in the standard of living over the past generation have been staggering.

Of course, that is as it should be because the Chinese are not as dependent on their government looking after them the way that Americans are. They are more used to government being a burden and are quite happy to have seen some of that burden removed. And given the history of China, the Chinese are a lot more self reliant and used to having to scramble to survive. They are far better at reacting to crises and disruptions than Americans.

 
At 5/08/2011 2:15 PM, Blogger VangelV said...

BRIC countries are all dependent on the US given their present economic policies.

How? The simple fact is that what Americans do best is consume using borrowed money. That is not exactly doing the heavy lifting that keeps the world going. Consumption is easy. I is production that is hard.

And the biggest (China) has a massive demographic problem that make ours look tame by comparison.

Look at the problems caused by aging Boomers who have high lifestyles but little in savings.

And corruption with chronic malinvestments are everywhere in BRIC nations.

True. But corruption is huge in the US. Look at the Alt A mortgage and subprime fiasco, Fannie, Freddie, the GM bond decision, the military industrial complex, etc.

Europe has an aging, declining population and massive debts in lessor countries to support the standard of living in France and Germany.

Which is a good reason to be negative on much of Europe. (And why the Europeans need Turkey.)

I'm not saying American policies are smart or effective, I am saying we are as bad as everyone else.

Agreed. The US has the same type of problem as most big-government nations. That is why I am negative unless there are fundamental changes.

 
At 5/08/2011 2:16 PM, Blogger PeakTrader said...

VangelV, you don't have to visit a sewer to understand a sewer.

China has been exploiting the masses to strengthen the communist government.

It's a fine line between raising their living standards enough to prevent rebellion and maximizing the wealth of the elite.

 
At 5/08/2011 2:20 PM, Blogger VangelV said...

The Fed doesn't, and shouldn't, micromanage the economy. It uses its crude tools to smooth-out business cycles.

Nonsense. It creates the business cycles by injecting liquidity into the system and fixing interest rates. Without the Fed there would have been no IT and housing bubbles. Or an Iraq/Afghan conflict. Or a welfare state.

The Fed has been successful in recent decades.

You have lousy standards. The Fed has been a failure. Since its creation it has managed to devalue the USD by more than 95%.

It prevented a deep depression in the 1970s (similar to the 1870s or 1930s), engineered a disinflationary growth boom from 1982-07, and is attempting to prevent another deep depression.

It destroyed the purchasing power of the USD and allowed bubbles to form. It prevented corrections from taking place. It allowed the government to run up huge debts and run massive deficits. It destroyed those dependent on fixed incomes.

The Fed's ultimate goal is to raise U.S. living standards at the fastest sustainable rate, and it has done an excellent job.

As I wrote, you have very low standards. And no ability to think logically.

 
At 5/08/2011 2:25 PM, Blogger Benjamin said...

Vange-

You are a perfect example of the dumbing down that is the modern-day GOP-talk show host-birther crowd.

Low interest rates are a result of tight-money--Milton Friedman said so. Japan has had mild deflation for 20 years--that is tight money in action. You cannot have low interest rates for 20 years unless you have tight money. You cannot have loose money and deflation for 20 years.

And, the record shows, tight money does not work. It does not lead to low inflation but good growth. It leads to mild deflation and perma-recession. Inflation is a necessary lubricant, the money illusion is a valuable result.

You are also inconsistent. If Japan is following a loose money policy, where is the hyper-inflation you were blabbing about?

Indeed, where is the USA hyper-inflation you are Chicken Littling about?

Cluck, cluck, cluck.

 
At 5/08/2011 2:25 PM, Blogger PeakTrader said...

VangelV, your statements are full of contradictions and you say I have "no ability to think logically." LOL

 
At 5/08/2011 2:29 PM, Blogger VangelV said...

Economists can handle economics. Lawyers can't.

I am saying that the Keynesians at the Fed don't know much about economics.

If it wasn't for the Fed's quantitative easings, this country would be in depression.

The Fed created the crisis by being too easy on interest rates and by printing money. More of the same did not help the real economy or prevent the necessary correction from taking place.

Raising actual output towards potential output, which the Fed is attempting, benefits the country.

The Fed can't increase output. All it can do is print money and create distortions.

Wall Street not only made a fortune on the naive economic policies of politicians, but also raised U.S. living standards in many ways, and Wall Street knew the government would bail it out.

Raised living standards? You have retired people with mortgages and nothing in the way of savings. You have one in seven people on food stamps and almost a fifth of income coming from transfer payments. That is not rising living standards. It is delusion.

Other countries are holding U.S. dollars and losing through currency exchange rates, interest rates, and inflation.

As one of my friends pointed out. When the USD becomes toilet paper and is no longer the reserve currency all the infrastructure and factories built in the developing world will still be there. But at that time Americans will be broke and unable to pay to build their own infrastructure and build their own factories. I suspect that at that time you will still be trying to justify your unjustifiable position.

 
At 5/08/2011 2:33 PM, Blogger VangelV said...

China has been exploiting the masses to strengthen the communist government.

The masses have seen their standard of living go up much faster than your standard of living. Go to a Chinese airport. Then go to an American airport. Which one looks like it belongs in the developing world?

 
At 5/08/2011 2:37 PM, Blogger Benjamin said...

Meanwhile, the US government is borrowing money through 10-year Treasuries at a 3.19 percent interest rates.

That tells me bond investors don't think there is much inflation out there.

Real estate investors obviously don't think there is much inflation out there.

Unit labor costs are going down.

The DJIA is where it was in 1999. Equity investors must not believe in big inflation either (we have record earnings).

This is inflation? No one sees the hyper-inflation of Vange's fevered imagination?

What is hyper-inflation? Is that more than one percent a year? Vange's definition must be somewhere around this figure.

Someone riddle me this: Would you rather live in a country with five percent real growth and five percent inflation, or one percent real growth, and one percent inflation?

 
At 5/08/2011 2:54 PM, Blogger PeakTrader said...

VangelV, you could also cite China's bullet trains, and many Chinese no longer live in small huts with dirt floors.

Nonetheless, even China's middle class (and exclude the 1 billion Chinese living below them) view Wal-Mart as a luxury store (and shop at Wu-Mart).

China's middle class of 200 million people live almost as well as the bottom 10% of Americans.

 
At 5/08/2011 2:58 PM, Blogger PeakTrader said...

I stated before:

Who's better off?

China's per capita real income rising from $500 to $3,000, while U.S. per capita real income rising from $15,000 to $45,000 over the same period?

China gained 500%, while the U.S. gained 200%.

Or, China gained $2,500, while the U.S. gained $30,000.

However, U.S. real per capita GDP has been flat the past four years, at around $43,000, while China is expected to add another $3,000 to real per capita GDP by 2020:

China's per capita GDP to hit US $3,000 by 2010
(Xinhua)
2008-01-04

China's per capita GDP will reach 3,000 US dollars by 2010...the figure would reach 6,000 US dollars in 2020 if it maintained the current growth rate.

 
At 5/08/2011 3:07 PM, Blogger VangelV said...

Low interest rates are a result of tight-money--Milton Friedman said so. Japan has had mild deflation for 20 years--that is tight money in action.

Nonsense. Tight money means that it is hard to borrow. In Japan it was easy to borrow. That is why interest rates were set at zero.

You cannot have low interest rates for 20 years unless you have tight money. You cannot have loose money and deflation for 20 years.

First, zero percent is not tight money. Second, it is possible when you have a balance sheet recession and businesses and consumers know that they need to pay off debt.

And, the record shows, tight money does not work. It does not lead to low inflation but good growth. It leads to mild deflation and perma-recession. Inflation is a necessary lubricant, the money illusion is a valuable result.

Have another drink please. You are so screwed up that it is pointless to point out the specific errors any longer. Yours is a belief based on arrogance and ignorance. Try getting an education.

 
At 5/08/2011 3:07 PM, Blogger PeakTrader said...

VangelV, that Chinese airport looks almost as good as the Denver airport (DIA).

 
At 5/08/2011 3:22 PM, Blogger VangelV said...

You are also inconsistent. If Japan is following a loose money policy, where is the hyper-inflation you were blabbing about?

As I said, in a balance sheet recession when there is plenty in the way of savings you can have a period during which businesses and households will retire debts even in a zero interest rate environment. This means that the effect of the easy money policies are offset by company and household retirement of debt. (When a family has a fifty year mortgage it will slowly pay it off, not borrow more to buy more.)

The US is in a different position. While it is going through a balance sheet recession many of its companies and households do not have sufficient cash flows to avoid bankruptcy and are in no position to retire debts. The use does not have much in the way of domestic savings and its debts are held by foreigners who may not have the same incentive to believe in the currency. As the Fed continues to print money and use it to buy more USTs, foreign lenders will have to do something with those holdings or risk losing everything. I suspect that some foreign bank at the periphery will head for the exit by dumping its exposure to USDs. More will follow until someone meaningful finds that an exit is not too easy and the rout begins.

 
At 5/08/2011 3:23 PM, Blogger VangelV said...

Indeed, where is the USA hyper-inflation you are Chicken Littling about?

It is there for all those willing to look.

Food. Energy. Tuition. Insurance premiums. Health care.

 
At 5/08/2011 3:29 PM, Blogger VangelV said...

Meanwhile, the US government is borrowing money through 10-year Treasuries at a 3.19 percent interest rates.

That tells me bond investors don't think there is much inflation out there.


No. It tells you that there is no free market involved. Between the Fed and foreign central bank buying of US government bonds there is no pressure on the price regardless of how bad the true prospects of government finances.

 
At 5/08/2011 3:34 PM, Blogger VangelV said...

Real estate investors obviously don't think there is much inflation out there.

There isn't. Real estate is still overvalued.

Unit labor costs are going down.

I do not think so. If you hire an employee today you are more likely to pay more than you would have last year at this time.

The DJIA is where it was in 1999.

That was a peak after a long period of Fed meddling in the economy. The market is still too high.

Equity investors must not believe in big inflation either (we have record earnings).

No you don't. Financial earnings are overstated because of accounting games. If we go back to the old FASB rules we will see much larger losses and lower earnings.

This is inflation? No one sees the hyper-inflation of Vange's fevered imagination?

The hyperinflation is not with us yet. But the inflation is clear to anyone who drives, eats, has kids in school, or buys health care.

What is hyper-inflation? Is that more than one percent a year? Vange's definition must be somewhere around this figure.

I do not understand how you come to that conclusion. Of course, you are not exactly a rational individual who reads carefully.

 
At 5/08/2011 3:41 PM, Blogger VangelV said...

Nonetheless, even China's middle class (and exclude the 1 billion Chinese living below them) view Wal-Mart as a luxury store (and shop at Wu-Mart).

China's middle class of 200 million people live almost as well as the bottom 10% of Americans.


Most of China's malls sell hand made Swiss watches that go for $20K-$50K a pop. Sales are brisk. Hermes, Coach, Louis Vuitton, and other high end retailers now sell about as much in China as they do in the US. With growth in China much faster than it the US China will soon pass Europe as the largest luxury retail market in the world.

As I wrote before, the standard of living in China is now rising much higher than in the US, where the standard of living is stagnant of in decline.

 
At 5/08/2011 3:44 PM, Blogger Benjamin said...

Well, everyone in the USA who owns real estate is waiting for the Great Inflation to come...and we are waiting, and waiting, and waiting. Still waiting.

Meanwhile, unit labor costs are declining. The DJIA stays in the same range it has since 1999. Bond investors give up money for 10 years at 3.19 percent. Commercial office rents in downtown Los Angeles are same as they were ...in 1980. $3sf a month.

Commodities has had its blow-off, maybe falling from here.

This is the oddest hyper-inflation I have ever seen.

Well, maybe inflation is like black olives in California. We have "super jumbo colossal" and other categories invented by the state Ag department.

So, now we have "hyper-inflation" and soon we will have "super hyper inflation" (that means 2 percent on the CPI).

After that, "Ultra Super Hyper Inflation" (more than 3 percent on the CPI).

 
At 5/08/2011 9:04 PM, Blogger VangelV said...

VangelV, that Chinese airport looks almost as good as the Denver airport (DIA).

Actually, it is a lot better. You can go through customs or get cleared for boarding in a fraction of the time. You have much more variety when it comes to duty free goods, restaurants, etc., and have a cleaner environment. Most American airports are inefficient, old, and run down. They pale in comparison to the airports in China or most of the developed world.

 
At 5/08/2011 9:27 PM, Blogger VangelV said...

Well, everyone in the USA who owns real estate is waiting for the Great Inflation to come...and we are waiting, and waiting, and waiting. Still waiting.

It will not matter. When it comes real estate will still lose in real terms. The nominal price increases may help those that have fixed rate long term mortgages but the price increases will still trail the increase in food, energy and many other sectors.

Meanwhile, unit labor costs are declining.

Are they? Hourly wages have been increasing at 2% over the past year or so. Unit labour costs look as if they are going down because desperate workers have taken up some slack and look to be more productive, particularly if a few accounting liberties are taken with the real numbers. But that is an illusion because the output reported by the financial sector is not what it appears to be. Certainly the government employees are not any more productive than they used to be.

The DJIA stays in the same range it has since 1999.

And it should fall some more.

Bond investors give up money for 10 years at 3.19 percent.

Not exactly. Most of those bonds are bought by the Fed, banks working for the Fed, and other central banks. No sane investor would give the government money at 3.19 per cent for ten years.

Commercial office rents in downtown Los Angeles are same as they were ...in 1980. $3sf a month.

They need to fall even more. With businesses leaving the state in droves there is a large surplus of office space.

Commodities has had its blow-off, maybe falling from here.

Possibly but do not confuse some action in the paper market for the real thing. I bought silver a year ago at $19 and in October at $25. A year ago gold was around 20% below current prices. Wheat, oil, copper, and other commodities were a lot cheaper. While I have slowly been exiting many of my low grade copper properties over the past six months and expect some turmoil in the base metal sector when China has to slow down and the US collapses the commodity sector certainly looks a lot healthier than financials, industrials, treasuries, municipal bonds, or the fiat currencies.

This is the oddest hyper-inflation I have ever seen.

It is in the early stages and you probably have not seen any. Go ask a Mexican, Thai, Korean, Hungarian, Greek, Serbian, Chinese, Macedonian, or Argentinian what hyperinflation looks like. Many will recognize what is going on in the US economy as the early stages of a high or hyper-inflationary event.

 
At 5/10/2011 5:17 AM, Blogger George Phillies said...

How can these numbers be true? And, yes, I am going to agree that they are reasonably accurate.

#1) Higher prices. Clearly false for, e.g., white goods (the things in your kitchen), computers, ... Cars? That's a modest part of GNP. Perhaps some processed minerals? I am disinclined to believe this explanation.

#2) Much longer working hours. Clearly not true.

#3) Radical changes in production techniques. I can point at a few places where this explanation is correct, so that American labor costs per unit are less than Chinese costs for the same item, but that happened over a long time not the last few years and does not explain the acceleration.

#4) Elimination of the less productive, e.g., layers of middle management. This is the horizontal part of having more people who work and fewer people who do not. Perhaps.

Manufacturing has gone from 18 million workers to 11 or 12 million. But which 6 million became unemployed?

#5) Culling the herd. For example, General Motors. The less-well-run firms simply go away. There are obvious examples.

4 and 5 seem unlikely to go on forever.

 

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