The Japanese economy: a woolly mammoth frozen in time

From The Economist

The copper market is confusing

The price of copper has dropped 12% year-to-date. The reason given is that the market is in surplus because of weakness in China, mainly.

And yet, according to an article in the FT this morning, there are contradictory facts:

1. Chinese demand for copper is currently "extremely strong," according to Tilis Mistakidis, head of copper for Glencore. Demand in China was up 16% year-over in the the three months ending in October.

2. Copper stocks in Shanghai, London and Chicago are at the lowest levels since 2008.

3. Copper production is expected to drop in 2015 due to declining grades at Escondida, the world's largest copper mine, and mine rehabilitation elsewhere.

4. Analysts who had been forecasting a surplus in 2015 have been cutting their surplus estimates.

Strong demand. Low stockpiles. Declining output. Lower copper prices. It doesn't make sense . . . unless a severe global economic slowdown is in the offing. But is it?

I don't see an objective reason why the economy should be worse next year than this. Mental gloom, however, could conceivably produce a depression were it intense enough, just as high animal spirits could produce a boom, were they present. "The mind is its own place and in itself, can make a Heaven of Hell, a Hell of Heaven." (Words of Satan in Milton's Paradise Lost)

So will we be in for Heaven or are we heading for Hell?

Greece: Now that' what I call a depression.

Piketty lambastes the US economics profession

This weekend I borrowed Piketty's Capital in the 21st Century from the library. Lest I be thought to have read it, I hasten to point out that I read only the introduction, the conclusion, and the chapter on inherited wealth. In addition, I looked at some of the graphs.

He makes a few basic points:

1. Given that the long-term growth rate of the world economy is 1%-1.5%, and the normal return on capital is 4%, it is a mathematical certainty that wealth will grow relative to incomes over time until wealth is destroyed by war, revolution or government policy.

2. Inherited wealth predominates over earned wealth.

3. The spread of knowledge and transparency is a countervailing force that tends to equalize wealth, but it is generally not strong enough to offset fully Point 1.

The introduction is good because it summarizes the book in about 30 pages. Piketty is also an entertaining writer. Someday when I have a lot of free time, such as one would have if serving a long prison term, for example, I may read the entire book.

Piketty was a wunderkind who was hired to teach at MIT just after finishing his PhD in France. He didn't like the US economics establishment, however, because he found that US economists deluded them into thinking they were scientists and were fascinated with their childish mathematical models which had little to do with reality. He therefore returned to France where economists have the advantage of being held in low regard and are therefore obliged to cooperate with the other social sciences and to provide useful insights.

I have attached a page from the introduction that states this. It made me laugh.

The problem we now have in the US is that the deluded economists with their childish models divorced from reality are controlling our fate.

Iraq: Government military strategy fails

Today's FT reports that the Iraqi army has over 50,000 "ghost" soldiers: soldiers who are paid regularly but who don't exist. This worked out fine until ISIS attacked; against them, the ghost soldiers turned out to be totally ineffective.

Interesting details on the rise in average earnings

Real wages are rising at last

The jobs report this morning was good, with 321,000 net new jobs in November. Economists were forecasting about 100,000 fewer.

Equally, and perhaps more interesting was the news that average hourly earnings grew 2.1% year-over-year. (In November of 2013 wages only grew 0.9% yoy.) You will note that wages in Japan are also growing an a good clip. (Not so in the UK.)

Faster wage growth is understandable because although the overall unemployment rate is at 5.8%, the unemployment rate of whites is 4.9% and of Asians is 4.8%, so whites and Asians are close to full employment, which means wages should rise. Rising wages will be tempered, however, by the 6.9 million involuntarily part-time workers plus the discouraged workers.

The FT reported this morning that real wages in the developed world rose only 0.1% in 2012 and 0.2% in 2013, so what we are seeing in Japan and the US represents an important change, I should think.

So wages are finally rising again. Maybe were are beginning to exit this long period declining/stagnant household income, and, at long last, consumption binging can resume. Let us hope for this good result.