Well, that was one of the more interesting haircut experiences I’ve had in a while. The lady cutting my hair told her colleague that she’s late on her car payments. The other lady responded that she is, too, and they laughed.
The second, however, pointed out that her car is broken and she can’t afford the fix. Then someone else chimed in that his car had been in the shop for weeks and he couldn’t get it out. Then another said her car insurance payments had gone up and that she was considering moving just two blocks over to escape the high-premium district.
I finally just interrupted these tales of woe and asked a normal question. What’s going on around here? Someone said, “We are out of money.” Then everyone agreed. There’s no money and the paychecks aren’t covering the bills, so they’re juggling them in strange ways, one late this month and another late the next month.
I got curious about all this and started digging deeper. Are these loan rates adjustable and so changed with the new rates? No, that’s not the case. The problem is that while salaries and wages paid the bills a few years ago, now everything is much more expensive, and raises aren’t keeping up. Saving money is out of the question. At this point, they’re just trying to keep the bill collectors at bay.
Does any of this sound familiar to you? I would bet it does. It’s a normal experience these days, such that the middle class is being squeezed from both ends. They’re deeply in debt but can’t sell cars or homes because they would have to acquire new ones and take on debt that’s much more expensive. So they hold on to what they have.
In real terms, everything is vastly more expensive today than it was three years ago.
I’ve never heard such conversations in a haircut place before. People are very open about this because they know that other people share the same issues, thus removing the shame. It’s a shared plight. Meanwhile, you have the major media out there saying that the economy is red hot and growing robustly. At this point, we have to ask: growing for whom? It’s not the class of people who could previously count on a good job as a means of paying the bills.
Understandably, this whole problem has put many people in bad moods. They’re snapping at friends and vexed with financial problems that have forced vast numbers to downgrade their spending, and they turn an envious eye toward the rich, which can be dangerous. This gradual decline in living standards expresses itself in growing incivility, which itself shows up in strange ways, from public griping at the barbershop to organized shoplifting at street-level retail shops.
Yet, we don’t call it a recession, even though every hard signal shows that we’re already in one. Government tax revenue has fallen precipitously exactly as it has in every recession previously declared since World War II. There are two reasons: the unemployment rate and the positive gross national product.
The labor numbers are clearly distorted by labor dropouts and double-counting of multiple job holders. People trading full-time jobs for multiple part-time jobs doesn’t seem like economic health.
Today is the day to talk about the gross domestic product (GDP). The headlines, as expected, were wild with excitement because the data shows a 4.9 percent annualized increase for the third quarter. CNN says that this growth is “staggering.”
I’ve come to distrust any news report that deploys this term: It’s an exhortation to how you are supposed to respond.
Maybe it’s better just to stick to the facts. These days, nothing is as it seems. For example, the Commerce Department reports a 4.9 percent third-quarter increase in real GDP as annualized data. But if you look at year-over-year change, it’s only 2.9 percent. Here’s an example of how sensitive these reports are to how you render them.
Let’s take a closer look.
What goes into the calculation of the GDP? The formula is: the sum of consumption (C), investment (I), government expenditures (G), and net exports (X—M). C is a calculation of consumer spending, but it doesn’t include growing debt. Investment is what businesses spend on plants, research, equipment, and so on. Both fundamentally depend on accurate collection techniques, and those have been broken for years.
As for expenditures, that’s government spending and that’s absurd. Government spending detracts from wealth creation. Only the most diehard Keynesian fossil would believe otherwise, and yet, this fallacy continues. And the trade data are skewed by a weird mercantilist bias that supposes that exports are always good and imports bad.
You see, there’s no magic machinery in the sky that observes the operations of the world and spits out a number to tell us whether we’re making wealth or not. These huge aggregates are always garbage in and garbage out. They’re also seriously subject to political manipulation, and I swear that no presidential administration has toyed with this trick more than the Biden administration.
The newest release is more evidence of that.
A closer look shows two large drivers: more consumer spending, which is hardly a surprise given things, and a very large increase in government spending at the federal and state levels. Federal government spending is up by 6.2 percent, with a large share of that on military spending (8 percent increase). That accounts for why government debt is up by $600 billion in one month! This stuff is out of control, insane, and yet being rendered as economic growth.
It’s true that investment is up, too, but when you drill down on that, the largest increase is in intellectual property products, meaning navigating the patent thick for drugs, software, and various technical deployments. It’s not the place for an extended argument on this topic (maybe someday), but this isn’t economic growth. It’s a cost of regulation, as anyone in the affected industries can tell you. It takes some extreme juggling to re-render this mess as a contribution to national wealth.
As for consumer spending, it’s up, but check it out: personal for the quarter is down to 3.8 percent, which is extremely low. It’s all the more alarming that this happens in the presence of far higher interest rates. You can get paid now for saving money for the first time in a decade and a half. The problem is that people don’t have the discretionary income to take advantage of the new rates for saving.
And speaking of disposable income, here’s a devastating detail that isn’t in the government’s statement and not even in the main tables. You can only find it listed under “addenda.” Disposable personal income is fully negative, falling by 1 percent for the third quarter. This nasty little fact isn’t reported in any news stories that I’ve seen, and that’s because the Bureau of Economic Analysis didn’t happen to put it in the release.
Consider all of this: huge increases in government spending, increased indebtedness, falling savings, and falling disposable income. Let’s just draw on normal human intuition here. Does this seem like economic growth to celebrate?
I’m coming to believe that you can learn far more about economic realities from listening carefully at the barbershop than you can from reading releases from statistical agencies. And incidentally, when today’s numbers are revised increasingly lower, that won’t make the news.
