Dear Professor Shiller, an Open Letter, if I may.
I think you almost got it. But not quite, in my view.
I refer to the interview on CNBC t’other day. “Trump rally could be like Coolidge’s Roaring ’20s before Depression, Nobel-winning economist warns…”
As we both know, the current fad in economics is quantitative nonsense. Broader areas and perspective are quickly crushed because mathematics is relatively easier to teach than a wide-ranging sense of history.
As should be apparent from your most excellent work in Housing, however, recurrent Cycles seem to appear.
All that remains is to figure out the drivers of the cycles and everything should be fine.
One driver could be average economic lifespan. While people in the Roaring Twenties had a long economic life, they still burned out at died at a young chronological age. Was it (*in part) this fact that drove the Kondratieff (*Kondratiev) wave to the 48-64 year range?
Or was it technology shift. Of the sort Robert T. Ely wrote of in his Depression economic classic “Hard Times: The Way In, the Way Out?” His view was that technological displacement, in the 1920’s driven by machine-backed technology that destroyed demand for draft animals. This rippled into overplanting of crops to pay mortgages, excess production, although with a large helping of Drought to spice things up as well.
I’ll grant you the modern analog to the Great Depression is rotating into view, but for what reasons?
The invention and propagation of the microprocessor has resulted not only be better engineering, but it led to networked storage and this ended a huge segment of the workforce of the 1970’s and earlier – secretarial work.
Moreover, the runaway networked computer entity known as the Internet has facilitated the largest tech bubble in history, the first part of which burst in 2000 yet was covered up in 2001 by an (*alleged) act of Terrorism.
While I respect your reference to Coolidge as the historical rhyme in play, there is another one – the one we discuss quite deeply on my www.peoplenomics.com site.
That is the notion that we are – this week – approaching the zenith of markets shortly and we’re about at the equivalent of June 1929 as you will see in this comparison chart.
As in your excellent work in Housing and other bubblesque phenomena, this view arises when one devises a combinatorial index of the US markets.
The downplaying of $5-8 trillion in loses in the Tech Wreck circa 2001 by masking it with “terrorism” is particularly noteworthy. These events provided for the immediate creation of a major war, nearly instant hiring of 100,000 people (*primary jobs) in “security” and it is even greater today. Toss in the Instant Stimulus from massive technology investments in new security industries (drones is just one) and we can see how 2001 was spun into a major economic stimulus. In retrospect people get mush-headed about economic drivers especially when they are obscured by massive headlines and lifestyle change.
Other efforts at public obscuration and confusion are more apparent on closer inspection.
I often point to the Americorps program as being the modern-times analog to the Civilian Conservation Corps (CCC) and the related Works Progress Administration (WPA) of the earlier period.
Americorps, as you may know, is one of the arms of the “Corporation for National and Community Service” – a solidly hit echo of the Works Progress Administration. Indeed, reading over the Americorps fact sheet here, I was struck by the similarity between Americorps’ missions and those of the CCC:
“Disaster services: In response to the tornado that struck Joplin, Missouri, on May 22, 2011, AmeriCorps teams organized a large-scale volunteer response center that recruited and supervised more than 75,000 volunteers. Through the AmeriCorps-led operation, unaffiliated volunteers contributed more than 579,000 hours of service. These hours completely defrayed over $17.7 million in emergency match dollars owed by the City of Joplin to the federal government at the conclusion of the response.
Economic opportunity: AmeriCorps VISTA engages more than 8,000 members each year in fighting poverty by creating businesses, expanding access to technology, recruiting volunteers to teach literacy, and strengthening antipoverty groups.
Education: AmeriCorps places thousands of teachers, tutors, and mentors into low performing schools, helping students succeed in school and gain skills necessary to get 21st-century jobs.
Environmental stewardship: Members build trails, restore parks, protect watersheds, run recycling programs, and promote energy efficiency, weatherization, and clean energy.
Healthy futures: AmeriCorps members save lives through HIV/AIDS education and outreach, drug and alcohol prevention training, and connecting poor families to health clinics and services.
Veterans and military families: AmeriCorps supports the military community by engaging veterans in service, helping veterans readjust to civilian life, and providing support to military families.”
To my jaundiced eye, it appears modern government has anticipated eventual need for a civilian mass employer and these programs are getting the template ready for higher inputs – of humans looking for work and the sustenance of life that work provides.
When do we hit the “multi-factorial tipping point” from which we collapse?
You know Housing is overpriced. We know equities are overpriced, we suspect the bond markets have just hit bottom such that as yields rise, paper profits from holding bonds will collapse, and so forth.
My personal suspicion is we will tip in 2017 Q3 to 2018 Q3 because of a paucity of jobs remaining for no specialist humans.
The combination of workflow re-engineering and business process automation will be whacking at old-style jobs. And companies like Amazon will continue deploying robots for the drudgery of production work. Amazon, as I’m sure you know, is now approaching 70,000 robots. Their Amazon Robotics website (here) gives it all away: “We Reimagine Now.”
We stand ready to watch the War of the Business Models we have written of before: As a real estate developer (Trump) is likely to side with the mall owners who are the old-line large investment vehicles for pension funds and life insurance companies. Trump has already given voice to anti-trust questions about Amazon.
For their part, Amazon is pushing the envelope ever-faster. 2-hour delivery services in Amazon test markets are killing personal trips to the store and mall. And you do know that Amazon air cargo is now the third or fourth largest in the world?
All this is not a criticism of your fine work. It is, however, a suggestion that when the mechanics of a massive social tipping point due to displacement is considered, it may be later than you proposed in that CNBC interview.
Herbert Hoover was sworn in March 4, 1929 and the all-time-high for the market was 182 days later.
That would place the Trumperian Era resonance in late July and the massive declines in the fall of 2017.
However, there is one last option: And that is through clever manipulations, we avoid the initial (Wave 1 down) decline of October 1929 and instead keep the present bubble alive for a while longer, only to collapse when the Wave 3 down analog arrives.
This, for sure, will be an interesting period.
My wife and I live out in the sticks where we have a kind of “prepper’s heaven” because the usual end of a massive Depression is a war, and that we reckon to be due in the 2022-2024 timeframe. So to me, the only question is about the duration and depth of the intervening Greater Depression.
Respectfully…blah, blah, blah.
P.S. Perhaps lost in all the climate change blather is the possibility that a California Drought 2.0 could return as the Pacific Oscillation progresses between “el” and “la.” So if indeed this arises in 2017 headlines, I might double-down on my pessimistic views that D2 will be sooner than later.
Adventures of “Trump The Wheeler-Dealer”
Isolationism may – or may not – be a bad thing. Several stories to consider this morning may help us evolve a clearer perspective:
In the WaPo “China says it will cooperate with Trump but warns on Taiwan.”
Yahoo News carries an AFP story reporting a “China tycoon moves jobs to US, citing high taxes at home…”
And CNN blares the “Trump team floats tariffs.”
I suppose this could be tacked on to my Open Letter above, because it (again) signifies to me that we are in Hooverian times, not some rhyme off Coolidge. Wikipedia Snip:
“The Tariff Act of 1930 (codified at 19 U.S.C. ch. 4), otherwise known as the Smoot–Hawley Tariff or Hawley–Smoot Tariff, was an act sponsored by Senator Reed Smoot and Representative Willis C. Hawley and signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods to record levels.”
In predictive analytics, this suggests we could see the modern analog introduced into Law around summer of 2018. Punch in Tariffs as a keyword to track from mid-2017 as legislation should be arising in Congress within a year.
Daily Doses of Data
“Pass the number,” you say? Which one?
Census has Advance Durables down $228.2 billion.
New orders for manufactured durable goods in November decreased $11.0 billion or 4.6 percent to $228.2 billion, the U.S. Census Bureau announced today. This decrease, down following four consecutive monthly increases, followed a 4.8 percent October increase. Excluding transportation, new orders increased 0.5 percent. Excluding defense, new orders decreased 6.6 percent. Transportation equipment, also down following four consecutive monthly increases, drove the decrease, $11.7 billion or 13.2 percent to $76.6 billion.
Shipments of manufactured durable goods in November, up two of the last three months, increased $0.2 billion or 0.1 percent to $234.2 billion. This followed a 0.1 percent October decrease.
Primary metals, also up two of the last three months, drove the increase, $0.3 billion or 1.7 percent to $18.0 billion.
Unfilled orders for manufactured durable goods in November, down five of the last six months, decreased $2.3 billion or 0.2 percent to $1,126.7 billion. This followed a 0.8 percent October increase. “
Bureau of Economic Analysis has GDP up 3.5% annualized in Q3 ’17:
Caption this something like “Real gross domestic product increased at an annual rate of 3.5 percent in the third quarter of 2016 (table 1), according to the “third” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 1.4 percent.”
Which kinda pisses many readers off since the Social Security notifications now arriving show 100% of our “Social Security benefit increase” when to Medicare insurance. Not even a cheeseburger of disposable income increase for we seniors which, as I say, is a pisser.
Stock futures were flat.
And the Chicago Fed National Activity Index showed growth down slightly in November:
“Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to ?0.27 in November from ?0.05 in October. Two of the four broad categories of indicators that make up the index decreased from October, and two of the four categories made negative contributions to the index in November.”
Not that this surprises us: The elves have been replaced by robotics.
Just remember, as we have told you (without stop) Robots Don’t Pay Income Taxes and they are Free thanks to Depreciation.
Until we review and change economic policies to value humans differently (advantageously) compared with machines, the headlong rush to the Great Depression will continue unabated.
Andrew Ure, the apologist for British factory owners, was wrong about machines. We’re now trying to correct that oversight.