The Economist, too, is living in a fantasy land: "The audacity of hope"

President Obama has rightly and repeatedly pointed out that anyone who believes the economy is not doing well is "living in a fantasy land."

The Economist has moved to this fantasy land. The current issue has a report on guaranteed incomes. ("Sighing for paradise to come") In it there is graph with the tongue-in-cheek title of "The audacity of hope." (That is also the title of Obama's 2006 book.) It shows that the median salaries of full-time workers in the US are basically unchanged since 2000 A.D. despite a 15% increase in GDP/capital. (Britain did better than the US in both GDP/capita and earnings.)

On top of that, of course, is the fact that fewer workers have full-time jobs and the numbers of those outside the workforce has grown considerably.



To misquote T.S. Eliot, "I'll show you malaise in a handful of dust." (I guess misquoting Eliot is one of the things people in a fantasy land do.)

"Honey, I shrunk the economy!"

As President Obama has rightly stated, "anyone who thinks the US economy isn't doing well is living in a fantasy land." The World Bank, which has just cut its forecast of world growth this year and has cut its US growth forecast particularly sharply, is clearly a denizen of that imaginary place.

The Bank's location was confirmed by this morning's CFA Institute News Brief:

"World Bank shrinks forecasts for economic growth
The World Bank has downgraded its outlook for growth of the global economy this year from 2.9% to 2.4%, which it characterized as insipid. A 0.5-percentage-point cut in its forecast for the wealthiest countries accounts for about half of the reduction. The development lender lowered its US growth forecast from 2.7% to 1.9%.Bloomberg (07 Jun.) "

Prof. Boskin is "living in a fantasy land."

President Obama has rightly remarked that anyone who thinks the economy isn't doing well is "living in a fantasy land."  I agree.  We are living in a fantasy land.

Michael Boskin, the economics professor who changed the inflation calculation for social security so that it would rise less than actual inflation, that during the reign of the male Clinton, writes the following in an op-ed in today's Wall Street Journal:

"Mr. Obama will likely go down as having the worst economic-growth record of any president since the trough of the Great Depression in 1933—over eight decades spanning 13 administrations. Mr. Obama thus far has overseen 1.7% average annual economic growth, and the Blue Chip forecast for the remainder of 2016 is only slightly higher."

Given that capital spending is expected to contract in real terms in 2016, the immediate future does not look much different from the recent past. Nonetheless, I may choose to fantasize about a better outlook. (But I certainly wouldn't put money on it.)

Upsurge in China's housing market boosts its economy

There is a remarkable article in this morning's WSJ on A10, "China Housing Warms as Debt Clock Ticks," In the January to through April period, housing sales increase 61.4% yoy, property investment rose 7.2%, construction starts rose 21.4%.

This is after a multi-year contraction in housing/GDP. In 2013 housing contributed 22% to China GDP, which is about the same as in Spain and Ireland in 2007. This dropped to 19.8% in 2014 and to 15.1% in 2015. (Maybe 6% is something to aim at as a longer-term healthier number?)

This recent surge reminds me of what happened in Singapore, where we happened to be living during the Great Recession. The stock market went down and housing prices went up. The Chinese, who think multi-generationally, regard property as an investment and stocks markets as speculation. When they become leery of stocks, they buy property. In normal times Singaporeans speculate on stocks during the week and gamble on mahjong during the weekend. (In the local convenience stores the thick weekly books of stock charts are hot sellers.)

Here is a quote from the article: "'Leaving my money in the bank is meaningless and it will only devalue,' said Wang Hong, a 35-year-old office administrator who is looking to buy a second home in Nanjing." Holding fiat currencies is not considered a safe investment in Asia, where they do not benefit from the US dollar's strict stewardship.

The ECB and Germany play a confusing blame game

German finance minister Schauble blames the ECB for the rise of populist parties, which he attributes in part to the ECB's easy money policy. He thinks they should tighten up.

In reply, ECB Chairman Draghi mostly blames Germany for Europe's woes and for making the ECB adopt an easy money policy. According to Draghi, Germany's high savings rate compared to its neighbors is somehow forcing the ECB to stimulate because Germans are refusing to go into debt and splurge on consumption items.

Meanwhile, Europe's first quarter economy grew at a 2.4% annual rate (0.6%) with no inflation. This is a great result and the previous quarter was also good. Draghi, however, is unhappy because the inflation rate is too low in relation to the growth rate. (WSJ, A14)

I find this all very Kafkaesque.

1st Q US GDP: Right for the wrong reasons

1st quarter US GDP was reported at +0.5% yesterday, which is weak but still positive. This graphic from the WSJ shows that consumer spending on services, residential investment, and state and local government have accounted for more than all the increase.



Here is are some factoids from the "Contributions to Percent Change" table of the BEA press release:



Without the housing bubble (thanks, Fed), Obamacare, and government spending, 1st Q GDP would have been down .82% This does not seem like a productive economy to me, or am I missing something?