Guest Post by Paul Craig Roberts
According to official US government economic data, the US economy has been growing for 10.5 years since June of 2009. The reason that the US government can produce this false conclusion is that costs that are subtrahends from GDP are not included in the measure. Instead, many costs are counted not as subtractions from growth but as additions to growth. For example, the penalty interest on a person’s credit card balance that results when a person falls behind his payments is counted as an increase in “financial services” and as an increase in Gross Domestic Product. The economic world is stood on its head.
It is aggregate demand that drives the economy. Payments made on a rise in interest rates on credit card balances from 19% to a 29% penalty rate reduce consumers’ ability to contribute to aggregate demand by purchasing goods and the services of doctors, lawyers, plumbers, electricians, and carpenters. Contrary to logic, the fee is magically counted in the “financial services” category as a contributor to GDP growth. The extortion of a fee that reduces aggregate demand lowers GDP, but builds paper wealth in the financial services sector.
GDP growth is also artificially inflated by counting as GDP abstract concepts that do not produce income streams. For example, for homeowners the US Department of Commerce estimates the rental values of owner-occupied housing, that is, the amount owners would be paying if they rented instead of owned their homes, and counts this imputed rent as GDP.
These and other absurdities have caused economist Michael Hudson to conclude correctly that the “financial reality of how the U.S. economy works is no longer captured in GDP statistics.”
https://michael-hudson.com/2019/10/asset-price-inflation-and-rent-seeking/
Today we have two economies. One is the real economy of production and consumption. The other is the financialized economy of paper wealth. The former is doing poorly, and the latter is doing well. The financialized economy is growing much faster than the real economy. Indeed, the real economy might not be growing at all.
Michael Hudson describes the difference. The stock market is at all time highs that have created massive wealth in financial assets for stock and bond owners. In the real economy the situation is totally different: “The Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2018 reports that 39% of Americans do not have $400 cash available for a medical or other emergency, and that a quarter of adults skipped medical care in 2018 because they could not afford it ( https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf ). The latest estimates by the U.S. Government Accountability Office (GAO) report that nearly half (48 percent) of households headed by someone 55 and older lack any retirement savings or pension benefits ( https://www.aarp.org/retirement/retirement-savings/info-2019/no-retirement-money-saved.html ). Even in what the press calls an economic boom, most Americans feel stressed and many are chronically angry and worried. According to a 2015 survey by the American Psychological Association, financial worry is the “number one cause of stress in America today” ( https://www.apa.org/news/press/releases/2015/02/money-stress ).
The data is completely clear. The rich are becoming much richer, and the rest are becoming poorer. Michael Hudson explains:
“The creation and trading of property and financial assets at rising prices has been fueled by rising debt levels owed to the financial sector. This sector’s returns therefore are best seen not as real wealth on the asset side of the balance sheet, but as overhead on the liabilities side. And the process is multi-layered: income accruing to the financial wealth owned by the top 10 Percent is paid mainly by the bottom 90 percent in the form of rising debt service and other returns to financial and other property.
“In the textbook models of industrial capitalism’s mass production and consumption, an asset’s price is determined by its cost of production. If the price rises above this level, competitors will offer it cheaper. But in the financialized economy an asset’s price is determined by how much credit buyers can borrow to buy it, not by its cost of production. A home is worth as much as a bank will lend to a bidder.
“The engine of industrial capitalism and its consumer society is a positive feedback loop in which widely shared income growth, expanding consumption and markets generated yet more investment and growth. By contrast, the feedback loop of financial capitalism is an exponential growth of credit-driven debt, driving up asset prices and hence requiring yet more borrowing to buy homes, retirement income and other assets. Corporate management and investment today is mainly about obtaining capital gains for real estate, stocks and bonds than about earning income.
“We illustrate this by charting the flow of income and capital gains in the real estate sector to show the dominance of asset-price gains over net rental income – and how rental income is used up paying interest in our financialized economy. Likewise, corporate income is spent (and new debt taken on) largely for stock buybacks to raise share prices. The resulting dynamic is exponential and destabilizing.”
This dynamic is destabilizing, because as more of consumers’ discretionary income is drawn off to service mortgage, credit card, automobile and student debt and for compulsory health insurance, less is left to purchase the goods and services in the real economy. Consequently, credit-driven debt grows faster than the income that services it, and this impoverishes the 90%. However, for the 10%, money creation by the Federal Reserve in order to protect the balance sheets of the “banks too big to fail or jail” drives up the values of financial assets. As a result the distribution of income and wealth becomes hightly polarized.
Think about the many Americans who meet their living expenses by making only the minimum payment on their credit card balance. At 19% interest their debt grows monthly. Eventually they hit a credit card debt cap and can no longer use the card to cover their living expenses. But they have the burden of a large debt balance to service without an income stream capable of servicing it.
Think about the corporation that decapitalizes itself in order to produce short to intermediate term capital gains for shareholders and executives by indebting the firm in order to buy back the firm’s shares. The end result is that all income goes for debt service.
In a financialized economy, the only possible outcomes are debt forgiveness or collapse.
As Michael Hudson makes clear, the combination of nonsensical categories in the National Income and Product Accounts and a financialized economy means we have no accurate picture of the economy’s condition. Michael Hudson has a proposal for correcting these problems and making GDP accounting more accurate, but as ecological economists such as Herman Daly have made clear, GDP measurement also omits the external costs of production. This means that we do not know whether GDP is growing or declining. It is entirely possible that the ecological and social costs of an increase in GDP (as currently measured) are greater than the value of the increased output. (See Paul Craig Roberts, The Failure of Laissez-Faire Capitalism, https://www.amazon.com/Failure-Laissez-Faire-Capitalism/dp/0986036250/ref=sr_1_2?crid=16NHZEQ9G3JRW&keywords=paul+craig+roberts+books&qid=1576440032&s=books&sprefix=Paul+Craig%2Caps%2C173&sr=1-2 )
Perhaps the major way in which GDP is overstated is the exclusion of external or social costs. External or social costs are costs of producing a product that the producer does not incur but imposes on third parties or on the environment. For example, untreated sewage dumped into a stream imposes costs on people downstream. Runoff of chemical fertilizers from commercial farming produces dead zones in the Gulf of Mexico and toxic algal blooms such as Red Tide that result in massive fish kills, make seafood unsafe, cause human ailments and adversely impact the tourist trade of beach areas. The result is lost incomes, ruined vacations, health expenses, and none of these costs are born by the commercial farmers.
Real estate development produces massive external costs. Scenic views from existing properties are blocked, thus reducing their values. Construction noise and congestion impose costs on existing residents and reduces the quality of their lives. Water runoff problems are often created. Infrastructure has to be provided, such as larger highways to provide evacuation from hurricane-impacted areas, usually financed by taxpayers. If the global warming case is correct, the external cost of human economic activity can be the life of the planet.
Lakshmi Sarah in the May/June, 2019, issue of the Sierra Club magazine provides an excellent detailed account of the external costs of coal-fired power plants being built in India by the Indian conglomerate Tata with a loan from the International Finance Corporation, a branch of the World Bank. The ground water in the area has been ruined and is no longer drinkable. Farmers are no longer able to grow crops on half of the area farmland. Heated wastewater that is dumped into the Gulf of Kutch is destroying fishing. The ecology and the livelihoods of the population are essentially destroyed. None of these costs are born by the private power companies.
Tired of being doormats for capitalists and the World Bank, the residents of the affected provinces rebelled. They have succeeded in getting their case before the US Supreme Court. It seems that the International Finance Corporation is so accustomed to financing projects that produce large external costs that it overlooked its obligation to examine the environmental impact of the projects it finances. This oversight resulted in Indian farmers and fishermen getting their case before the US Supreme Court. The International Finance Corporation’s lawyers argued that the World Bank lending agency had “absolute immunity.” The Supreme Court said no and remanded the case to the circuit court to rule on the damages.
Perhaps the most surprising thing about this apparent victory for ordinary faraway little people in an American court against the World Bank, a principle instrument of American imperialism, is that the Trump administration appeared in court as a friend of the Indian farmers and fishermen. The US Solicitor General, represented by Jonathan Ellis, rejected the notion that international orgnizations have absolute immunity. The Establishment exists on its immunity. Here we see the ultimate reason that the ruling Establishment wants rid of Trump.
Already the senior staff of the International Finance Corporation have come to the realization that they have other responsibilities than just to shuffle money out the lending shute. If the Indian farmers and fishermen succeed in protecting themselves from ruination by external costs, perhaps Americans who suffer external costs will follow their lead.
Perhaps economists will also come to the realization that they owe us accurate GDP accounting and not fanciful accounts that serve elite wealth in the financialized economy.
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
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I hope “subtrahend” does not become the new “insouciance”.
That caught my attention too; it came from the cited Hudson article.
Thanks John!
Perpetual motion is possible. It’s in gravity.
Wow. Here is an idea – what say people stop going into debt, and stop buying shit with debt that they do not need (Igizmos, designer sneakers, new cars, big screen TVs come to mind). Voila – no credit card interest to pay.
The middle class died with the loss of manufacturing jobs that occurred due to automation between 1950 and 2020. An equivalent of around 60 million less manufacturing jobs exist today as in 1950. They have been replaced in large part by…. service jobs. Working at McDonald’s is not going to cut it.
Ge skilled or get used to it.
Oh, yes. We all remember when automation shipped the jobs to those third world shitholes.
Ur comment needs more boostraps.
I love it when morons post about shit they know nothing about. Manufacturing jobs have dropped by 60 million, and almost none of those have gone overseas (estimates are around 2-4 million). The rest – around 50 or 60 million – were steadily automated out of existence. Here, moron, is the proof of it:
You see that straight-line drop? Gee, wonder how the fuck that happened?
Fucking morons. Every thirty years manufacturing employment as a percentage of workforce halves. Thirty years ago it took 100 workers to do what 50 can do now. And thirty years before that it took 200 to do the same. And in 30 years, or less, it will only take 25. Given that manufacturing employs around 8 – 10% of the workforce, in thirty years it will employ 4-%. and offshoring jobs has fuck all to do with it.
When was the last time you bought anything that was made in America?
When was the last time he was even in America? Yet, he seems to be an expert on all things Murica.
I am in the US regularly.
As to anon – I have many times posted lists of where you can buy just about anything you want made in the US.
Here, once again, for your education:
https://www.madeinamerica.co/pages/thelist
It is fucks like you two that crap on about nothing made in America that then buy Chinese shit because you are either too stupid or too hypocritical not to buy US made goods. Fucking wankers.
If you two rolled your brains down the edged of a razor blade it would be akin to a bb rolling down a 4 lane highway.
BTW – I post data that unequivocally destroys the “Da Chinese tooks ourz jobz” narrative, and there are at this point at least 5 idiots too stupid to be able to make sense of it. TBP really needs some smarter monkeys.
No, Anon2 is right. If your claims were correct, there would have been no significant change in the nation of origin of manufactured goods being sold.
What we actually see is that virtually everything is now imported. That there has been such a significant change in product origin over that time period covered by your chart exposes your claim as the lie which it is.
The US produces $2.5 trillion in manufactured goods, and imports around $540 billion from China. You folks are morons.
Takes one to know one.
Morons, obviously, being people who see through your bullshit.
You must meet a lot of them.
What would the value of those imports from China be, if the Chinese were paying American wages?
This would increase their direct labor cost by between 6 to 10 times. Thus, the value of the imported goods would increase to somewhere between $945 billion to $1.27 trillion.
With your numbers, Chinese imports are still equal to about 17% of American production – not insignificant. The labor expense adjusted numbers suggest the Chinese imports would equal between 28.6% to 33.3% of the American production.
Then you need to add in all the other third world places we import stuff from.
I guess the bottom line is that we’re not the moron, here.
You are.
I was one of a couple hundred Cairo Georgians making car parts for Detroit in a factory owned by a Chicago company. After 19 years of operation, their old manual non-computer equipment was shipped to Mexico in 1984 to cut personnel costs.
That is the equation. If automation costs >= to the costs of labor elsewhere, they will ship it. Otherwise they will automate it. That they use equipment for 19 years without upgrading speaks to how poorly run the business probably was. 19 years running old equipment means they are not investing capital back into the business.
“Among the most viable of all economic delusions is the belief that machines on net balance create unemployment. Destroyed a thousand times, it has risen a thousand times out of its own ashes as hardy and vigorous as ever. ” – Henry Hazlitt
This argument has been brought up, an defeated, innumerable times from Adam Smith onward. By your logic, the tractor and combine have cast innumerable farmers out of work, to say nothing of the scythe-makers!
Buggy whips
They definitely dislike what truth you have to say, lloph. I wonder what your detractors think?
All very correct lloph, than you, but I don’t know why you have been down-voted – who are these guys? Perhaps they haven’t read my book?
AP – the difference is that you, no kidding, are a genius, and they are idiots. They follow narrative, and you truth. I care not what they think, because those that want to learn, will. Some will not, and they matter not.
Glad to see you commenting. Appreciate all you have done on TBP.
Thank you for your kind words, Lipoh, and for your support. I would be nothing without TBP family and Admin’s undying commitment at great personal cost and effort to him.
I don’t get enough time to read and comment as I would wish, but working away at it optimistically. Best wishes for the season to you and yours.
Austrian,
I am sorry that your Jigsaw articles seem to be getting no play. The comment counts are abysmal. I do not say this to be negative…just observation.
Can you, please, in a paragraph or 2, explain your Jigsaw book? A synopsis?
Thank you Donkey for your interest and support. The subject does not attract mass appeal at present because everyone has busy lives and there is little time for reflection and study. I do believe that my articles are read, not commenting necessarily. Only when the End Times become apparent will interest be kindled. At present we only have signs.
I am happy to correspond if you wish: [email protected] Here is the Preamble from my book (sorry about the formatting):
PREAMBLE
This book is aimed at younger generations, who have not had the benefit of studying
the complexities of the global financial system and how or why it is likely to collapse
in the near future. This subject is not taught in schools or universities, which indicates
that there is a massive chasm in our young people’s knowledge and understanding of
the key features in the management of their modern life arrangements.
Part 1 of the book describes the global financial system as an incomplete jigsaw,
implying that, until all the main parts of it are understood, it is not possible to
comprehend fully the interconnected nature of the system. Part 2 will be offered as a
second book, a guide and reference to the knowledge and skills needed following a
global reset of the financial system and the emergent New Economy that will follow,
with specific reference to the United Kingdom.
Although the internet offers an amazing array of information at a touch of the
keyboard, it can be confusing and sometimes inaccurate because most websites are
not peer-reviewed and are sometimes misleading. Our young people have been
conditioned to rely on social media for much of their view of the world today, and this
distorts their understanding of the likely course of events, many of which will have an
impact on their future employment and prosperity.
It is no exaggeration to state that our current perception of modern lifestyles assumes
that our youth will work for approximately half their lives and, with prudent financial
management, will enter a comfortable and well-funded retirement just like their mums
and dads.
Unfortunately, the evidence indicates that this will patently not be the case;
the unique golden age of the last seventy years of prosperity will remain forever in the
past. The future is simply not as rosy as many assume – in fact, it is very likely that
the coming generations will be required to work until they drop, not a welcome prospect.
The author presents evidence showing how and why the future is likely to unfold contrary to currently accepted economic theory, and offers vital information on how to prosper under conditions that will be diametrically opposed to those we have relished in the past.
The book may be considered a commentary on the dysfunctional
nature of our Western political and economic systems.
You are welcome to a PDF copy even if you only skim it.
Best wishes
Peter
Why you are a slave.
Colonel Edward Mandell House Predicts the Creation of the STRAWMAN (Debt slave) in the United States.
This is the first real evidence found that our current Social, Financial, and Legal system was deliberately
designed to enslave humanity: In a private meeting with Woodrow Wilson (US President 1913- 1921) Colonel Edward Mandell House predicted the banksters’ plans to enslave the American people. He stated: “Very soon, every American will be required to register their biological property (that’s you and your children) in a national system designed to keep track of the people and that will operate under the ancient system of pledging. By such methodology, we can compel people to submit to our agenda, which will affect our security as a charge back for our fiat paper currency.
“Every American will be forced to register or suffer being able to work and earn a living. They will be
our chattels (property) and we will hold the security interest over them forever, by operation of the law
merchant under the scheme of secured transactions. Americans, by unknowingly or unwittingly delivering the bills of lading (Birth Certificate) to us will be rendered bankrupt and insolvent, secured by their pledges.
“They will be stripped of their rights and given a commercial value designed to make us a profit and
they will be none the wiser, for not one man in a million could ever figure our plans and, if by accident one or two should figure it out, we have in our arsenal plausible deniability. After all, this is the only logical way to fund government, by floating liens and debts to the registrants in the form of benefits and privileges.
“This will inevitably reap us huge profits beyond our wildest expectations and leave every American a contributor to this fraud, which we will call “ Social Insurance.” Without realizing it, every American will unknowingly be our servant, however begrudgingly. The people will become helpless and without any hope for their redemption and we will employ the high office (presidency) of our dummy corporation (USA) to foment this plot against America.” – Colonel Edward Mandell House.
Harry Kripps a local union president in Saginaw Michigan says 40 yrs of automation has decimated Saginaw. Mike Hicks an economist at BSU has been studying the loss of jobs in middle America. He claims automation has been a silent job killer that few want to admit, he accounts nearly 80% of jobs lost can be attributed to automation with only 20% due to offshoring. What’s worse is now all of this A.I. is coming down the pike which has already been estimated to kill 47% of all jobs, beginning with white collar workers, yes white collar. It appears if this thing continues, the man who can work with his hands in the outdoors may very well be the last man standing. Lots of things coming, lots to think about, mostly not good. Just saying, Thanks
Thanks to all .I love The Burning Platform.I get a little wiser every day.
Luddites
Whoa there partner, I don’t follow nothing but the truth, which means sometimes I have to retrace some steps and take that other fork. Right here in the Ozarks I would say offshoring has definitely cost us more jobs than automation, but when considering the whole of the U.S. that simply has not been the case. Even in farming, a very good example would be my brother in-law, he milks 10,000 cows in Idaho and they along with a whole host of dairies in the west are going full on with robots for milking.
Very short video, he is from Wisconsin and states very clearly why they are going robotic. I hate it, not the world I grew up in.