It is 'common knowledge' that the consumer is 70% of the U.S. economy -- it's a figure that's used all the time in economic reporting.  Too bad it's utter nonsense.  The consumer may be 70% of the way we measure certain aspects of the economy, but it's a statistic that is so misleading as to be harmful.

As usual, I like to get back to basics, in order to cut through the bullshit that passes for economic analysis these days.  So, let's consider things from simple principles (warning: there will be some basic math):

The first important concept is how 'the economy' is measured.  Should one measure production, consumption, or some combination of the two?  On a global basis (and ignoring for the moment reinvestment and a few other items) all production is eventually consumed in some fashion.  Thus, we could claim that the consumer is 100% of the global economy. It would make a lot more sense, however, to say that consumption is 100% of production.

Now, let's add a few other important items.  It is impossible to be perfectly efficient in production, so there will always be some waste (food spoilage for example).  Also, on the basis of a group that is smaller than the entire world, one can consume more than one produces by taking on external debt.  The main catch with debt is the interest expense.  So, we're now at:  Consumption = Production + External Debt - Interest - Waste.

Finally, the primary way to grow an economy (on a per-capita basis, which is what matters) is through reinvestment of production.  It's also a good idea to save some of our production for unforeseen events and retirement.  This gets us to an equation that covers all the most important items:  Consumption = Production + External Debt - Interest - Waste - Investment - Savings.

Now ask yourself, "What is the actual goal of an economy?  What are we trying to maximize?"  The answer, of course, is wealth.  From the standpoint of our equation, wealth is measured by savings and investment.  The more you are able to save and invest, the wealthier you will be.  Increased consumption is a byproduct of a wealthy society, but not the cause of one.  Let's rearrange the terms of our equation to reflect this:  Savings + Investment = Production + External Debt - Interest - Consumption - Waste.

Now we have a useful way of looking at things, and can see the reason for the title of this post.  To put it bluntly, consumption decreases wealth, so we wish to minimize our consumption to the extent which is reasonable.  Measuring our economic health through our consumption is completely idiotic.  Economic measurements should focus on the term in that equation which increases our wealth, namely production.

One final (and important) note is that our equation indicates that debt increases wealth (to the extent that it's greater than current interest).  This is an unfortunate artifact of a 'snapshot' measurement of the economy.  The truth, of course, is that we are losing wealth through interest, while the debt will eventually need to be paid back, subtracting this amount from our wealth in a future 'snapshot'.  The effect of debt over time is therefore negative  (a net zero on principal and a loss on interest).  A more rigorous (and needlessly complex for this post) approach would indicate this, along with a better breakdown of 'savings and investment' (assets such as houses, for example), as well as a few other time-series type items (such as depreciation and earned interest).

Posted by: Hermit Dave at 01:59 PM | No Comments | Add Comment
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I just looked at the page views, and I've got way too many this month.  Which means that either some morons are reading this drivel (1% probability) or the spam-bots have found it (99% probability) and I'm about to get some great comments from Lace Wigs et. al.

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The goals of today's appearance by Stephen Colbert before Congress were transparantly obvious: Distract from the testimony of Christopher Coates to the Civil Rights Comission, and reengage the drooling morons who take people like Colbert seriously.  From what I can tell by perusing the non-conservative intertubes:  Mission accomplished.

From Crazy Days and Nights, a gossip site:

"At the beginning, one member of the committee asked Stephen to not speak and just to submit in writing what he wanted to say. Lucky for us, he got to speak. If more celebrities testified like this someone might actually watch CSPAN."

There you have it.  Fuck the basic math on the cost of illegal immigration, the fact that Mexico can't provide a stable society for their own population, or anything else sensible related to the issue.  Stephen Colbert made the funny in front of Congress, and that's what matters.

Sadly, this attitude is entirely too representative of a large portion of the American populace.  Meanwhile, A quick check of the mainstream (including Fox) MSM sites shows both the Colbert and Lohan (going back to jail) stories featured prominently, with almost no mention of the Coates testimony.  Yeah, I know it's the Obamedia, but that media does represent a significant portion of America, regardless of what any of us might wish for.

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It's National Punctuation Day.  So, make [sure] ... you; use lot's of? punctuation!

Of course, the best way to use punctuation (and other mostly useless symbols) is as a substitute for profanity, eg.:  Ben Bernanke can go $'("@...%;-?& himself!!!

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Productivity gains are always touted as a good thing, and they are to the extent that they free up labor for other productive endeavors.  However, as productivity increases to the point where very little labor is required to produce vast amounts, we run into the problem of 'useless population'.  This, in my opinion, is one of the main reasons we find ourselves in our current economic situation.  This is also a situation for which libertarianism has no good solution, which, even as a libertarian, I'm willing to acknowledge.

Let's take an extreme example:  Consider a population with one need/want -- food.  If we maximize productivity, we have robotic farms which can feed millions with a handful of human workers.  This sounds wonderful, except that most of those millions have no way to earn a living, as their labor is completely redundant.  So one of three things must happen: (1) Those people farm for themselves so that they can survive, (2) We accept a socialistic society so that the productivity of the farms is distributed evenly, or (3) We borrow so that the 'useless population' can purchase food in the hope that they'll eventually become productive.

In situation (1) above, we devolve back to a much less productive society, which seems to be a very silly thing to do.  In situation (2), most people are getting a free ride on the back of those that actually produce, which hardly seems fair.  Finally, in situation (3), we start off with the equivalent of situation (2) and end up with unsustainable debt (which eventually causes either huge inflation or a crash) such that we're right back to situation (1).

I think it's easy to see how this simple example applies to the much more complex economy of the real world.  We're currently in a nightmare hash of situations (2) and (3), and rapidly headed for situation (1).  Many don't realize how prevalent situation (3) is at this point, but if one looks at the percentage of GDP that is subsidized through government debt, it's a rather astonishing 12%.  This is a topic Denninger (rightly) keeps harping on and the referenced post is just the latest of his many diatribes on the subject.

Given our complex economy, it can be difficult to discern just how few people are actually productive, but it's probably far fewer than most realize.  Take tax accountancy for example.  From the standpoint of actual wealth, this is a completely useless and unproductive profession -- the financial equivalent of filling in holes that have been dug by the government.  The profession neither creates nor preserves wealth, and is effectively part of a socialistic society -- just one in which make-work jobs replace completely free handouts.

At the moment, the governments of the world are trying to cover up the issue of 'useless population' by papering over the problem with a needless increase in economic complexity (health care legislation, etc.), borrowing, and outright printing of currency.  The former is obviously socialism, while the latter is unsustainable.  Either we're going to have to accept socialism, allow the expansion of debt/currency until we have hyperinflation or a crash, or we're going to have to find a better solution.

Clearly, I'm in the camp of find a better solution, but it's far from obvious what this solution should be.  For today, however, this post is long enough.  The reader (all zero of you) will hopefully think about the issue -- in the near future, I'll post about some of our options and the direction in which I think we should head.

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If politics sends your blood pressure through the roof and makes you want to go underground:

This song was featured in the thoroughly entertaining Wristcutters: A Love Story, one of the better movies made in the past few years.  Admittedly, that opinion might have something to do with Shannyn Sossamon playing the female lead:

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Listening to a beltway insider on the merits of political reform is the same as listening to an assistant crack whore on the merits of rehab.

Posted by: Hermit Dave at 10:29 AM | Comments (1) | Add Comment
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1 Awesome

Posted by: LC Aggie Sith at September 22, 2010 03:58 AM (+bSoE)

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Congratulations to Vincenzo Nibali for his victory in the General Classification (best overall time) of the Vuelta a Espana.

After a grueling three weeks and over 2,000 miles, Nibali rode into Madrid today with a 41 second lead over runner-up Ezequiel Mosquera.  Nibali sealed the victory yesterday with an amazing chase of Mosquera up the final climb.

I'm obviously in a small minority in the US, but I just can't get enthused about American team sports anymore.  I started losing interest once sports news became more about contract negotiations and arrests than about games.  These days, I'll watch a bit of the World Series and some playoff football, but that's about it.

I now mostly watch racing (of all types, but especially NASCAR), and international competition (grand tour cycling, skiing world cup, etc.).  NBC Universal is a great sports station for following the international competitions.  It's probably the one good product NBC puts out.

Posted by: Hermit Dave at 05:40 PM | No Comments | Add Comment
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Enough with the political shit.  Hell, it's Just Another Day:

Oingo Boingo is in the top five live performances I've been fortunate enough to see (and I've seen over 100 name bands live, plus at least a couple hundred bar bands).  I saw them in Boston way way back in the day, when they were opening for Squeeze (and made Squeeze, a very talented band, look like punks).

Danny Elfman, the frontman for Boingo, has since gone on to write scores and theme songs for a hell of a lot of well-known movies and TV shows.

Posted by: Hermit Dave at 11:51 AM | No Comments | Add Comment
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Beautiful Atrocities appears to be coming back.  If you're not familiar with the blog from before, it's an eclectic mix of politics and pop culture, with an extremely high quirkiness factor.  Great stuff.

I hope the initial entry is a sign of regular posting and not just a teaser.  I figure the zero hits coming from my almost-nonexistant crapblog will really help move things along.

(BA post pointed out at Agent Bedhead).

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I find it hard to believe that the hubbub over the DE primary is still going on, as to me the takeaway message is extremely simple:

People are so sick of business as usual in Government that they'd elect an old, smelly tennis shoe over a hack establishment politician.

That's it.  It really is that simple.  Whether or not O'Donnell is a somewhat-shady loon is completely beside the point.  Standard measures of 'electability' are meaningless, because playing the lesser-of-two-evils game has run this country into the toilet.

So the GOP doesn't get a Senate majority?  Considering what they've done with it in the past, who gives a shit? To the GOP establishment, every election has become 'the most important one evar!!!111!!one!' -- which is always bullshit, but rings especially hollow on a Senate race in fucking Delaware.

In case I'm not making my point, I'll be blunt:  the GOP leadership has absofuckinglutely zero credibility.  None.  Nada.  Zip.  Zilch.  Zero.  I'm not buying the "we're really going to vote like fiscal conservatives and not just play politics this time" line and, at this late date, almost nobody else is either.  If someone is pushing that crap, they're either hopelessly naive, or they have skin in the political game.

This isn't some dick measuring (bust-size measuring for females, I suppose) contest between the GOP establishment, RINOs, the Tea Party, neocons, paleocons, and/or any other conservative faction.  It's quite simply:  Throw the bums out.  That's it.

The most important part of this lesson, in my opinion, is not for this election cycle, but for 2012.  Assuming things go as expected and the GOP gains control of the House and captures about half the Senate, people are going to expect fiscal action.  So, jacking each other off and touting 'an enduring GOP majority', without making serious inroads into the current fiscal insanity, is going to lead to exactly one thing:  everything flipping back to the Dems in 2012 and even more GOP establishment bums thrown out.

For incumbents and the political establishment the old saying is now true:  The beatings will continue until morale improves.

Posted by: Hermit Dave at 10:34 AM | No Comments | Add Comment
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In the wake of the DE primary election, Karl Rove came out blasting O'Donnell. For some reason, this surprised and infuriated a lot of people.  These folks need to step back and rethink their previous adulation of Rove.

Karl Rove is an election tactician.  Period.  He's not a conservative.  He's not a long-term strategist.  He's only a Republican by whatever accident of fate put him in the party.  He'd be just as comfortable doing his thing for the Dems, as he has zero ideological basis to his actions.

To him, nominating O'Donnell over Castle is the height of stupidity, as you go from a likely win to a likely loss.  The concept that, if the Republican is going to vote like a Dem, it would be better to have a Dem in the seat, is completely foreign to him.  The idea that ideology matters simply does not compute in Rove's brain.

And all this is fine, if Rove has bosses that take ideology and strategy into consideration, and keep their pet tactician on an extremely short leash.  The problem is, as the GOP 'leadership' has become about maintaining their personal power and political perks at all costs, Rove has become the defacto face of the GOP establishment.

As can be seen from the time Rove came to prominence, having him as a party leader has been a complete disaster.  Sure, he won a few tight elections -- there's no doubt he is an excellent tactician.  However, the cost to win those elections in terms of sacrifice of principle and sound governance has proven to be far too high.  This is why there is a huge rebellion against the GOP establishment.  In the attempt to keep any power they can, the GOP leaders have triangulated themselves into oblivion, and now stand for precisely nothing.

It would be nice if someone in a GOP leadership position would take Rove aside and tell him that he'll be called upon when needed to manage a tight election with a desirable candidate, but otherwise he can piss off.  This won't happen, of course, as Rove is far too full of himself at this point, and the GOP leadership simply isn't that smart.

So, all this fury at Rove for, well, being Karl Rove, is a bit perplexing.  He'll end up being marginalized, which is what should have happened to him ages ago.  When your pet tactician goes rabid and gets off his leash, the best thing to do is put him down.

Posted by: Hermit Dave at 11:43 AM | Comments (1) | Add Comment
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