Note: I know, I haven’t gone on an epic econo-rant in a while, so maybe its well past time. For what its worth, the upcoming election isn’t going to change any of these structural issues any more than repainting your house will repair a failing foundation. Still, the election matters in the way a “journey of a thousand miles begins with a single step. – HT
Nobody trusts China’s official GDP estimates. Nobody. That’s why, when there are concerns about the risk of recession there, the experts look at electrical consumption data to get the real story. And, usually, there are discrepancies.
We’re led (and somewhat inclined) to understand that such disinformation is simply the product of a old-school, “ex-communist“, centrally-planned government.
And, yes, the Greeks lied about their deficit, a scandal that continues to undermine efforts to manage the Euro debt crisis. Better accounting, the public is assured,
will be has been instituted.
These examples, we think, must be aberrations. Nothing like that could happen here in the US. Except, we’ve also learned – over the past several years – to look somewhat askance at our own official pronouncements regarding such metrics as home sales, unemployment, job growth, inflation, etc., etc.
“Figures don’t lie, but liar’s figure.”
As recently noted by one UK observer: “Investors, politicians, business leaders and journalists don’t have the bandwidth or the resources to collect this data and publish their own statistics, thus they rely on agencies in Beijing, London, Washington and elsewhere to give them the most accurate information they need to make large monetary and sometimes social decisions. If that data is inaccurate it could have huge ramifications. It is not just China that might be misleading the world with its statistics; the West may be just as guilty.”
Unfortunately, the ramifications that (all too) many are concerned with are simply political. As any casual observer can note, the recent debates prompt more questions about veracity than, say the practical implications of policy.
Now, my Austrian leanings might suggest that any market that is so heavily manipulated – at it’s very root, mind you – will, unfortunately, broadcast a wide variety of mixed, or rather chaotic, signals. But, let’s understand this: interest rate manipulation is, after all, a deliberate distortion of the price of…..MONEY. Does anyone get that? It logically follows that it will, given enough time, distort everything it touches…which is to say, pretty much everything.
Me or Your Lying Eyes
You can’t hide your lyin’ eyes
And your smile is a thin disguise
I thought by now you’d realize
There ain’t no way to hide you lyin’ eyes
Alas, no, don’t believe me. But, don’t believe your own lying eyes either. If you’re the least bit challenged by “cognitive dissonance”, you’ll probably fail in this challenge, but I’ll pose it nonetheless. Make a visit to your local Home Depot. Check the parking lot. Check the check-out lines. Check the prices. Make mental notes about what you see.
Then read this article, which states, “The housing and real estate meltdown was so epochal, and so persistent, that it’s easy to miss one piece of good news: the comeback of Home Depot. Profits have surged at the retailer, and its stock has been on a multiyear tear, leaving rival Lowe’s and the S&P 500 in the dust.”
Now, on one level, I am cheered by that bit of news, at least until digging a bit deeper. “The company’s operating profit margins, which fell from 11.5% in 2005 to 7.4% in 2008, have rebounded to 10.5% without a significant recovery in home-improvement demand or the housing market.”
This article doesn’t delve too deeply into HD’s operating details, aside from noting that much of this success has come about by improving efficiency during the downturn. In other words, top-line revenue growth hasn’t been that great. My guess, for what it’s worth, is that the market is willing to believe that, over the long run, a) housing will recover and/or b) HD’s biggest competitor, Lowe’s, will go away. Take your pick. (Hint: I’m betting on “b”.)
All I know is that both of my local HD stores are a bit like desert islands (YMMV). They are depopulated and provide wide vistas of water that you can’t really afford to drink.
And, while its great to know that sound business management practices might help this (now somewhat anachronistic) housing-boom behemoth survive a bit longer, I’m not entirely sure where that really puts us….the consumer, the taxpayer, the erstwhile saver.
The latest consensus on the S&P, for instance, seems to suggest that all of those cost savings measures that have been driving record earnings growth over the past three years have run their course. The long-awaited “other shoe” of anemic top-line revenue growth may be here.
But, of course, it’s been there all along, just swept under the carpet. We all know that prices have been rising, even if the CPI doesn’t accurately reflect our own real-life shopping experiences. And, we know that our incomes have been dropping. That means we buy less, especially if those fewer items (or gallons of gas) we buy are priced high enough to result in measurable nominal GDP growth.
The Nominal Truth
Among certain economic circles, there have been rather exuberant debates over relative importance of nominal GDP growth. Arguably, the Keynesians are forever and always more concerned about nominal growth than anything else. But, this has always been the end-game scenario to our global debt crisis.
We ought to be honest, at least, about one simple fact of financial life: those that have the power to tax (or to print money) benefit from inflation. Intuitively, we know that inflation will, generally speaking (and within certain controlled limits), benefit borrowers and punish lenders. Who, we might ponder, are the biggest borrowers on the planet?
We – the slogging public – have been content for decades to borrow (or is it burrow?) our way into indebtedness and, of course, nominal wealth, rarely bothering to look beyond those measures. And, it’s true, that even nominal growth is better than none at all, especially when your average savings account will barely budge against the onslaught of inflation.
I know, I’ve said all of this before. So, I won’t belabor the point, but the real beneficiaries of inflation are the banks and our politicians. Counterintuitively, the banks benefit, despite ostensibly being the biggest lenders, because they are even bigger borrowers. The politicians benefit because (they think and constantly prove that) they can buy our votes with promised entitlements paid with tomorrow’s money. And the Federal Reserve, for its part, backstops both of them, at our expense.
All the recurrent talk about either a debt jubilee (yes, it’s started up again) or nominal growth targeting, is merely evidence of the growing desperation of these same folks to deliver the coup de grace, to freeze their real gains just before the clock runs out.
The Beatings Will Continue Until Morale Improves
In a nutshell, I guess, that’s what we’ve really got here, isn’t it? The circular logic of our economic and political ruling class is, to my thinking, more-or-less self-evident. That they’ve garnered enough actual power to control our day-to-day lives is a crying shame. That we, so often, refuse to recognize it for what it is and, thus, to do something about it, however, is worse still.
And, no, for the record, I don’t mean revolution, except for the very personal kind. You have to live in this world, using the little bits of liberty – economic, political, and moral – you have left to its best effect. So, yes, vote your conscience.
But, first, develop and tune that conscience. Don’t (however vicariously) spend your neighbor’s money or your kid’s inheritance. Don’t become more frugal at the risk of becoming less charitable. Don’t become risk averse, especially when “the safe course” is lethal. Try to be both aware and courageous and kind.
The sort of self-reliance promoted on this site is, first and foremost, intended as a platform for moral liberty. It has been argued that such liberty is most likely under conditions of economic and political liberty. And, while true, it doesn’t change our obligation even when conditions of poverty, social destruction, or indentured servitude make it difficult.
The beatings, alas, are likely to continue, but our morale can improve in spite of it all. – HT