American Economy: R.I.P. ?
Is conservative economist Dr. Paul Craig Roberts right? And will this be an issue in 08? And will this issue help or hurt Democrats?
CP-FROM Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review.
The US economy continues its slow death before our eyes, but economists, policymakers, and most of the public are blind to the tottering fabled land of opportunity.
In August jobs in goods-producing industries declined by 64,000. The US economy lost 4,000 jobs overall. The private sector created a mere 24,000 jobs, all of which could be attributed to the 24,100 new jobs for waitresses and bartenders. The government sector lost 28,000 jobs.
In the 21st century the US economy has ceased to create jobs in export industries and in industries that compete with imports. US job growth has been confined to domestic services, principally to food services and drinking places (waitresses and bartenders), private education and health services (ambulatory health care and hospital orderlies), and construction (which now has tanked). The lack of job growth in higher productivity, higher paid occupations associated with the American middle and upper middle classes will eventually kill the US consumer market.
The unemployment rate held steady, but that is because 340,000 Americans unable to find jobs dropped out of the labor force in August. The US measures unemployment only among the active work force, which includes those seeking jobs. Those who are discouraged and have given up are not counted as unemployed.With goods producing industries in long term decline as more and more production of US firms is moved offshore, the engineering professions are in decline. Managerial jobs are primarily confined to retail trade and financial services.
Franchises and chains have curtailed opportunities for independent family businesses, and the US government’s open borders policy denies unskilled jobs to the displaced members of the middle class.
When US companies offshore their production for US markets, the consequences for the US economy are highly detrimental. One consequence is that foreign labor is substituted for US labor, resulting in a shriveling of career opportunities and income growth in the US. Another is that US Gross Domestic Product is turned into imports. By turning US brand names into imports, offshoring has a double whammy on the US trade deficit. Simultaneously, imports rise by the amount of offshored production, and the supply of exportable manufactured goods declines by the same amount.
The US now has a trade deficit with every part of the world. In 2006 (the latest annual data), the US had a trade deficit totaling $838,271,000,000.The US trade deficit with Europe was $142,538,000,000. With Canada the deficit was $75,085,000,000. With Latin America it was $112,579,000,000 (of which $67,303,000,000 was with Mexico). The deficit with Asia and Pacific was $409,765,000,000 (of which $233,087,000,000 was with China and $90,966,000,000 was with Japan). With the Middle East the deficit was $36,112,000,000, and with Africa the US trade deficit was $62,192,000,000.
Public worry for three decades about the US oil deficit has created a false impression among Americans that a self-sufficient America is impaired only by dependence on Middle East oil. The fact of the matter is that the total US deficit with OPEC, an organization that includes as many countries outside the Middle East as within it, is $106,260,000,000, or about one-eighth of the annual US trade deficit.
Moreover, the US gets most of its oil from outside the Middle East, and the US trade deficit reflects this fact. The US deficit with Nigeria, Mexico, and Venezuela is 3.3 times larger than the US trade deficit with the Middle East despite the fact that the US sells more to Venezuela and 18 times more to Mexico than it does to Saudi Arabia.
What is striking about US dependency on imports is that it is practically across the board. Americans are dependent on imports of foreign foods, feeds, and beverages in the amount of $8,975,000,000.Americans are dependent on imports of foreign Industrial supplies and materials in the amount of $326,459,000,000–more than three times US dependency on OPEC.
Americans can no longer provide their own transportation. They are dependent on imports of automotive vehicles, parts, and engines in the amount of $149,499,000,000, or 1.5 times greater than the US dependency on OPEC.In addition to the automobile dependency, Americans are 3.4 times more dependent on imports of manufactured consumer durable and nondurable goods than they are on OPEC. Americans no longer can produce their own clothes, shoes, or household appliances and have a trade deficit in consumer manufactured goods in the amount of $336,118,000,000.
The US “superpower” even has a deficit in capital goods, including machinery, electric generating machinery, machine tools, computers, and telecommunications equipment.
What does it mean that the US has a $800 billion trade deficit?
It means that Americans are consuming $800 billion more than they are producing.
How do Americans pay for it?They pay for it by giving up ownership of existing assets–stocks, bonds, companies, real estate, commodities. America used to be a creditor nation. Now America is a debtor nation. Foreigners own $2.5 trillion more of American assets than Americans own of foreign assets. When foreigners acquire ownership of US assets, they also acquire ownership of the future income streams that the assets produce. More income shifts away from Americans.
How long can Americans consume more than they can produce?
American over-consumption can continue for as long as Americans can find ways to go deeper in personal debt in order to finance their consumption and for as long as the US dollar can remain the world reserve currency.The 21st century has brought Americans (with the exception of CEOs, hedge fund managers and investment bankers) no growth in real median household income. Americans have increased their consumption by dropping their saving rate to the depression level of 1933 when there was massive unemployment and by spending their home equity and running up credit card bills. The ability of a population, severely impacted by the loss of good jobs to foreigners as a result of offshoring and H-1B work visas and by the bursting of the housing bubble, to continue to accumulate more personal debt is limited to say the least.
Foreigners accept US dollars in exchange for their real goods and services, because dollars can be used to settle every country’s international accounts. By running a trade deficit, the US insures the financing of its government budget deficit as the surplus dollars in foreign hands are invested in US Treasuries and other dollar-denominated assets.
The ability of the US dollar to retain its reserve currency status is eroding due to the continuous increases in US budget and trade deficits. Today the world is literally flooded with dollars. In attempts to reduce the rate at which they are accumulating dollars, foreign governments and investors are diversifying into other traded currencies. As a result, the dollar prices of the Euro, UK pound, Canadian dollar, Thai baht, and other currencies have been bid up. In the 21st century, the US dollar has declined about 33 percent against other currencies. The US dollar remains the reserve currency primarily due to habit and the lack of a clear alternative.
The data used in this article is freely available. It can be found at two official US government sites: http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=20&area_id=3 and http://www.bls.gov/news.release/empsit.t14.htmThe jobs data and the absence of growth in real income for most of the population are inconsistent with reports of US GDP and productivity growth. Economists take for granted that the work force is paid in keeping with its productivity. A rise in productivity thus translates into a rise in real incomes of workers. Yet, we have had years of reported strong productivity growth but stagnant or declining household incomes. And somehow the GDP is rising, but not the incomes of the work force.
Something is wrong here. Either the data indicating productivity and GDP growth are wrong or Karl Marx was right that capitalism works to concentrate income in the hands of the few capitalists. A case can be made for both explanations.
Recently an economist, Susan Houseman, discovered that the reliability of some US economics statistics has been impaired by offshoring. Houseman found that cost reductions achieved by US firms shifting production offshore are being miscounted as GDP growth in the US and that productivity gains achieved by US firms when they move design, research, and development offshore are showing up as increases in US productivity. Obviously, production and productivity that occur abroad are not part of the US domestic economy.
Houseman’s discovery rated a Business Week cover story last June 18, but her important discovery seems already to have gone down the memory hole. The economics profession has over-committed itself to the “benefits” of offshoring, globalism, and the non-existent “New Economy.” Houseman’s discovery is too much of a threat to economists’ human capital, corporate research grants, and free market ideology.
The media have likewise let the story go, because in the 1990s the Clinton administration and Congress permitted a few mega-corporations to concentrate in their hands the ownership of the US media, which reports in keeping with corporate and government interests.
The case for Marx is that offshoring has boosted corporate earnings by lowering labor costs, thereby concentrating income growth in the hands of the owners and managers of capital. According to Forbes magazine, the top 20 earners among private equity and hedge fund managers are earning average yearly compensation of $657,500,000, with four actually earning more than $1 billion annually. The otherwise excessive $36,400,000 average annual pay of the 20 top earners among CEOs of publicly-held companies looks paltry by comparison. The careers and financial prospects of many Americans were destroyed to achieve these lofty earnings for the few.
Hubris prevents realization that Americans are losing their economic future along with their civil liberties and are on the verge of enserfment.
FYI
Incomes not keeping pace with home values
WASHINGTON – An Associated Press analysis of new census data provides insight into the reasons for the slumping housing market: Since 1990, homeowners have faced a growing gap between their incomes and the price of their homes.
The widening gap in all but a handful of the nation’s 500 largest cities helped make the recent boom in housing prices unsustainable, according to analysts. The rising prices were fueled largely by low interest rates and risky borrowing, rather than increasing incomes.
“We had an artificial economy,” said Brad Geisen, founder of Foreclosure.com, a Web site that lists foreclosure properties. “There was all this wealth created in real estate, and it wasn’t really created.”
Nationally, the median household income grew by about 60 percent from 1990 to 2006, roughly matching inflation. At the same time, the median home value – the point at which half were more and half were less – more than doubled, to $185,200.
The gap between incomes and home values was even bigger in many cities.
For example, incomes in Miami roughly kept pace with inflation – meaning they were effectively stagnant – while the median home value quadrupled, to $315,900. In places such as Bend, Ore., and North Las Vegas, Nev., incomes about doubled, but home values increased fivefold.
Mark Zandi, chief economist at Moody’s Economy.com, likened the current housing market to the dot-com boom and bust a few years ago, when stock prices for many high tech companies soared – before some of them ever turned a profit – and then crashed.
“The parallels are quite similar,” Zandi said.
The Census Bureau on Wednesday released 2006 housing data for every state, county, metro area and city with a population of at least 65,000. Income data were released last month.
Together, the figures provide a snapshot of the nation’s economy just as housing prices were peaking in many areas. Since then, housing prices have started to tumble in many markets, fueled by a crisis in the subprime loan market and dwindling credit even for some wealthier borrowers.
The AP compared the 2006 figures with data from the 1990 Census for the 499 cities that were included in both reports, providing an analysis of long-term trends that helped create today’s housing slump.
The analysis showed that homeowners in nearly every city are spending significantly bigger shares of their incomes on housing costs. From 1990 to 2006, the share spent on housing costs increased in all but 13 of the cities examined. Nationally, the share increased from 21 percent to nearly 25 percent for homeowners with a mortgage.
Many of the cities with large increases in home values were fast-growing cities or places with thriving economies. However, there were also large disparities in incomes and home values in some distressed cities, mainly because incomes effectively dropped.
For example, incomes in Detroit did not keep pace with inflation from 1990 to 2006, but home values more than tripled, to $91,700. Incomes also fell short of inflation in Cleveland, while the median home value more than doubled, to $90,400.
Home ownership rates are among historic highs, at 67.3 percent nationally. And booming home values have increased wealth for many families, allowing them to use the equity in their homes to take out second and third mortgages to finance home improvements, pay for college or buy automobiles and other amenities.
But many others who bought at the height of the market will have a harder time realizing their financial dreams.
Shawn Talbot and Gerry Woodruff bought a three-story condominium just outside San Diego in 2005, hoping to stay for about three years before trading up to a single-family home.
They were first-time homebuyers, paying $431,000 and financing it with two loans. They didn’t have a down payment, but they hoped the value would increase enough to give them a sizable one for their next house.
That dream is now on hold, as the market value of their condo is in flux. The couple both have good-paying jobs – Talbot works for a trade association and Woodruff is a financial analyst for an aerospace company. But the median home value in San Diego was $579,000 in 2006, among the most expensive in the country.
“Houses out here are almost like a 401k,” Talbot said in a telephone interview. “It grows and grows until you get older and you need it.
“But a year or so ago all that changed,” she said. “I’m not sure we will ever be able to afford a single family home in San Diego.”
“24,100 new jobs for waitresses and bartenders. The government sector lost 28,000 jobs.”
OR it created 24,100 really great high paying job. Love the way the ignorant assumptions of old protectionist hacks like Dr Roberts are blindly accepted as fact.
Maybe Dr Robers can explain why my company, which has 3 $50,000 a year jobs in my department it desperately needs to fill cannot get any applicants these days?
Also perhaps, people MIGHT be like to see some of Dr Robert’s more absurd claims.
This guy has his tin foil hat on way way way too tight
http://en.wikipedia.org/wiki/Paul_Craig_Roberts#September_11.2C_2001_attacks
“Incomes not keeping pace with home values.
An Associated Press analysis of new census data”
My first thought was “interesting comparison.” Then, I realized this was another reporter pretending to be an economist. Oh, well.
“Nationally, the median household income grew by about 60 percent from 1990 to 2006, roughly matching inflation.”
Look, there it is again! Proof that incomes are not falling!
The economy is bad. Paulson says we are in “for a long recovery” due to the credit problems. Some are saying housing prices will drop as much as 40% in real dollars. Others are calling for a partial collapse of the currency. Unemployment? Who knows what next months report will be.
The Government Accounting Office says we are on an unsustainable course and face a gradual is not sudden loss of our standard of living. We have gone from $20 trillion to $50 trillion for our unfunded liability with Social Security and Medicare and a serious downturn would certainly lower payroll tax revenues and alter that projection even more.
Today, the Dollar dropped to new record lows, oil topped $80 briefly before settling at $79.91 or so and commodity prices are causing companies to have to announce price increases fueling inflation. China is supposedly cutting back on treasuries and actually selling some off. True or not, just the threat is causing some to move investments to foreign currencies, bonds, and stocks.
Yet, a lower dollar would make exports cheaper and help increase demand for U.S. products and services.
Europeans that bought the DOW after the last crash, have lost money as the DOW priced in Euros is actually lower than what they bought it for 6 years ago. The figures I saw was that priced in Euros it was worth about $9,500 instead of $13,300 or so in dollars to euros valued at that time.
Bernanke admitted in his testimony last time in Congress that real wages haven’t kept up with total inflation so that isn’t good news either. But, things could be a lot worse. We could be facing 78 million leaving the workforce and ending their payment of payroll taxes and instead drawing from tax revenues for 35 years. We could be facing the immigration of 67 to 100 million and needing 1/3 more infrastructure when we can’t even maintain what we have.
John, you may like this MnJohnnie chap, but his/her views are wacky! Calling one of America’s most courageous individuals today, Dr. Paul Craig Roberts, a “protectionist hack”. Glad I haven’t lost my touch – I spotted MnJohnnie immediately as someone who I would not agree with. And the “tin foil hat” comment was also a giveaway – gotta be one of those loony Freepers!
David
Does Dr Paul Craig Roberts meet your standards as an economist?
I used to refer to you as Chicken Little John…I take it back…you have nothing on the protectionist hack kook PCR. He needs to get laid or something, what a pitiful old man. This is the same psuedo-journaeconomist who exacerbates the bs conspiracy theories about 9/11 being a govnernment plot.
Why do you still post this guy’s crap here John?
Bart
Dr. Roberts is a repected economist bottom line. Why not deal with his numbers and stop going after Dr. Roberts on a personal level?
What part of his numbers do you not agree with?
All of it…he is not a respected economist (isn’t that an oxymoron) John, he is not even a respected journalist and worst of all, he went to GA Tech!
Do you agree with this kook that 9/11 was a government plot?
David,
What we learn from monitoring median income can only be applied to median income.
I can’t imagine that looking at the median of anything tells us enough to make judgements about the whole of a thing.
With the Gini index changing distribution of income, the median could be rising, indicating a shift to benefit the previous upper two quartiles.
Unless you can explain it better to me, I see no point in selecting changes over time in the median point as signicant.
What has happened with mean and the mode during that time?
I’m just not getting what you see in the median income as your driving factor in discussion of income for the average person.
Respectfully,
MD
I also don’t believe median income is a good indicator. Even Chairman Bernanke admits real wages aren’t keeping up with total inflation and we have seen that only the high rise in upper incomes has kept the decline in other middle-class workers keep the “median” rising. We are seeing a wage gap that has attracted the attention of many. Yet, a median income doesn’t reflect a wage gap.
Also, we have this that shows another problem we face in the U.S., economic freedom.
quote:
Economic Freedom of the World: 2007 Annual Report
Economic Freedom of the World 2007
By James Gwartney and Robert Lawson with Russel S. Sobel and Peter T. Leeson Buy from the Cato Store
Is capitalism contagious? If so, to what extent; and how does it spread? In new research published in this year’s report, Russell S. Sobel and Peter T. Leeson examine these questions empirically. They find that economic freedom does in fact spread, although not as strongly as might be suggested by the emphasis this idea has been given in US foreign policy. In the report, Sobel and Leeson discuss the implications of these results for foreign policy and offers some predictions about the future path, and spread, of global economic freedom.
This year’s report notes that economic freedom remains on the rise. The average economic freedom score rose from 5.1 (out of 10) in 1980 to 6.6 in the most recent year for which data are available. Of the 102 nations with scores in 1980 and in the most recent index, 90 recorded improvements in their economic freedom score, and just nine saw a decline. In this year’s index, Hong Kong retains the highest rating for economic freedom, 8.9 out of 10, followed by Singapore, New Zealand, Switzerland, Canada, United Kingdom, and the United States.
http://www.cato.org/pubs/efw/
Of course, with freedom, comes the need for responsibility. Freedom means we need companies to act ethically and legally more on their own than through regulation. What about the nations that do need to regulate but also have to compete with those that don’t regulate as much and have lower compliance costs? How is a balance achieved between perceived needs and competition?
Ron Paul,
I wasn’t jerking your chain or pulling your string.
Do you ever do anything besides your over generalizations?
I’d call them talking points, but talking points are more specific.
Hell, even empty rhetoric is uphill from your spew.
MD
Japan has less economic freedom as measured by the Laffer mafia than Estonia.
Why do you say it is over generalization? Do you not see the trends developing these people point out?
Do you not see the decline in the dollar, infrastructure, economy, buying power, international respect for the U.S., etc.?
Can you even define freedom?
Responsibility? Liberty? infrastructure?
LOL!
You think infrastructure just improves by itself and some invisible thing has been done by politicians to cause a decline?
You don’t even get it.
It’s normal for economic systems to decline.
It’s abnormal for economic systems to never decline or always grown.
The same is true for trees. They do die, you know. Does that mean the forest is in grave danger?
You don’t have a clue of normal or norm.
lol
Even granite becomes dirt through natural processes. That you don’t see the processes doesn’t mean they don’t happen or that the processes aren’t normal.
Final effort ever to make you see yourself.
What you and your chosen experts see as abnormal or normal is skewed by your choice of normal and abnormal.
and you won’t get that either.
You still aren’t taking your meds or attending anger management like you should either but, that doesn’t change reality.
Yes, decline is normal in infrastructure which is why we always planned maintenance and maintenance expense as part of the budget in the companies I worked for. That is true of a society too and we did plan for maintenance through gas tax, for example. It is just that what was planned wasn’t planned well, nor was it funded adequately nor are the people currently willing to fund it properly.
Decay, changing trends, different needs arising, unexpected crisis, etc. are all normal. They are so normal that they are planned for in healthy society. Unfortunately, you don’t live in a healthy society as has been made obvious by recent events. Now, can they find a cure or will the patient continue to “linger” in bad health or not?
While “death” certainly doesn’t seem likely, a long lingering “unhealthy economy” does seem likely. As Paulson states, this will be a long recovery. What would make it worse is a continued decline in the faith other nations have in our currency and a decline in lending to the U.S. or a situation where inflation erodes buying power even more than it is.
Several decades of bad economic and social policies have come home to roost apparently, according to many people in and out of government. It is the government itself that is painting the picture of “gloom and doom” and not some economist on CNBC.
You can deny all the government reports, the advice of experts in and out of government and the trends we see unfolding but, that doesn’t change what is going on. We still, I believe, have some time until the crisis hits (”boomer retirement) and hopefully can find a “cure” for what ails America.
You state it is normal for economic systems to decline. Yes and no. It is normal for things to change that require new policies and that usually means a decline has or is occurring but, if you are implying the decline has to continue, you are wrong.
We have seen several nations that hit bottom but didn’t stay there. They reformed tax, compliance, business and social policies that are rising again. You don’t even have to hit bottom to do that but often that is what it takes to wake people up to the need for change.
That is also a “normal” trend that human nature repeats time and time again. We know the cycles that nations and economies often take and if we use history wisely, educate people to those things properly, can minimize the impacts of them.
Just a few months ago, the experts were denying we would have a recession and now they want the Fed rates cut to avoid one. Will we avoid a recession? Probably not but, how bad a one we have is dependent on many factors beyond the control of our government at this time.
They claim that due to the lag factor, a rate cut or hike, takes at least nine months to really have the effect intended fully. Thus, if they do cut the rate next week, a lot can happen in the next 9 months that makes their action less than was needed (or more).
Quote:
“Well, what possible argument could you make for buying the dollar right now? That interest rates are going to rise to double digits again, like they did after the 1982 recession?
“Wait, I thought we were talking about the Fed cutting rates. How will the dollar if the Fed cuts rates? Oh, you mean it won’t?
“Can you imagine what would happen to those two million ARMs set to reset in the next two years if the Fed hiked rates?
“No… the Fed won’t be raising rates. So where does the dollar go from here? Here’s what traders are telling Bloomberg about the dollar and Treasury bonds:
“‘The only component we can be confident about as nations diversify currency reserves is that Treasuries will be sold.’ Sean Callow said at Westpac Banking (ASX: WBC) here in Australia.
“China will ‘reduce its holdings of dollar assets to get higher returns,’ says Ha Jiming, the chief economist at Beijing International Capital Corp.
“I like what Masayuki Yoshiara said. He manages $25.9 billion for Sumitomo Life in Japan: ‘We’re not so bullish on the dollar.’
“Me neither.
“And when you look at that chart and consider the Fed will probably cut rates in the next ten days… it makes you wonder if gold isn’t about to go to $1,000 in the next eight weeks.
“I guess the other question you could ask is when and why would you buy the dollar. For yield? For safety? For old time’s sake?”
http://www.dailyreckoning.com.au/time-to-buy/2007/09/13/
===================
Economic advisers around the world, whether advising governments or individual investors are all in doubt about what will happen to the U.S. economy and currency.
Do you deny they have good reason to be concerned?
Your ice cream is melting.
You’re a 6 year old kid at a wake for your great grandmother. The adults give you some ice cream and hope you’ll be occupied.
You’re absolutely happy until you notice your ice cream is melting.
You complain to your mother.
She says, “Go eat your ice cream.”
You complain to your dad but he says to go eat your ice cream.
Ditto with your aunts, uncles, cousins.
“My ice cream is melting!”
And, the reply is, “Go eat your ice cream!”
So, you want someone to invent ice cream that never melts? What?
Enjoy the ice cream before it melts and leave the adults alone.
You and John have mastered the cut and paste. Well done.
David,
Why do you see so much importance in median income rising over time?
Serious question. Be sure I will ask more and more questions on this topic.
My point of view remains that economics, as taught, is deeply flawed.
And, that no one, stressing Nobody, can study economics and not buy into the faults.
“Philosophy [in this case, economics] is human thought in it’s own time raised to the level of human consciousness.”
Stress being on the “it’s own time.”
From Hegel, I think.
MD
M.D.
So, “cut and paste” some support for your arguments. All you can do is attack others and offer little substantial information to counter what they provide other than that you disagree with them.
It doesn’t appear your views are held in much esteem by those on this forum so why not try to prove you are correct? You disagree with the experts whose opinions are provided so support that disagreement with your own experts since it is obvious most don’t consider you an expert.
You state we have economic faults and on that most agree with you. Yet, if you don’t spell them out, how do you expect to have a reasonable debate on the merits of them.
What are the “fixes” you propose. Detail them for debate purposes. You may very well be an expert but you don’t demonstrate it if you don’t detail what you are saying is wrong or what needs to be done.
Ron Paul,
One minute you’re saying no one agrees with me and then you say most agree with me.
I’ve lost track of your agreements.
MD
Ron Paul,
“You disagree with the experts whose opinions are provided so support that disagreement with your own experts.”
Arguments based on authority are not valid logical arguments. It’s the kind of arguments kids have on the playground.
Mr Konop,
Dr Roberts is indeed an economist. As long as no one is confusing that statement with “Dr Roberts is an economist David agrees with,” then fine. After all, he is one of the prime architects of the Reagan Economic Destruction (RED, as in ink).
And. the Hoover Institute. And, the Wall Street Journal. And, Kemp-Roth. Enough?
.
But, since he called for Dubious to be impeached, he can’t be all bad. But, that was constitutional law, not economics.
= = = = = = = = = = = = = = = = = = = = = = = = =
Oh, and when you say “[X] is a respected economist bottom line. Why not deal with his numbers and stop going after [X] on a personal level? What part of his numbers do you not agree with?” , well, can I assume you’ll do the same with my own posts, when the numbers don’t match your preconceived notions?
So much nicer to argue facts than personalities, isn’t it?
= = = = = = = = = = = = = = = = = = = = = = = = =
Mad Dog,
The mode is nothing more than the most frequent occurrence.
For those few of us who don’t have the brain power to comprehend all factors at once, the median is useful.
1 = 10
2 = 10
3 = 10,000
4 = 10,001
5 = 10,002
6 = 10,003
7 = 10,004
The mode is 10, because it is the most common occurrence.
The median is 10,000, because exactly half of the observations are larger, and half smaller.
The truncated mean is 6,669.3 (toss out one 10 and the 10,004 as outliers). This is very useful when Bill Gates walks into that bar full of workers.
The average (or, arithmetic mean) is 7,147.1 (total divided by number of observations.
What you are trying to show will determine which one is most useful.
And, if you’re trying to hide something, you can do that, too.
“Oh my God! The mode income is only $10! We’ve got to do something!”
- – - – - – - – - – - – - – - – - – -
January 20, 2009.
The end of an error.
But, if it makes you happier to be called an idiot by an authority, let me help you out.
“There are many fields in which there is a significant amount of legitimate dispute. Economics is a good example of such a disputed field. Anyone who is familiar with economics knows that there are many plausible theories that are incompatible with one another. Because of this, one expert economist could sincerely claim that the deficit is the key factor while another equally qualified individual could assert the exact opposite. Another area where dispute is very common (and well known) is in the area of psychology and psychiatry. As has been demonstrated in various trials, it is possible to find one expert that will assert that an individual is insane and not competent to stand trial and to find another equally qualified expert who will testify, under oath, that the same individual is both sane and competent to stand trial. Obviously, one cannot rely on an Appeal to Authority in such a situation without making a fallacious argument. Such an argument would be fallacious since the evidence would not warrant accepting the conclusion.”
Logic
Sorry, the median is 10,001.
I added 10,004 and forgot to change it.
I said those things based on separate statements that you made. You are correct in some things and wrong on others. That is the same with anybody when a broad range of topics are covered. Life is too complex for any one person to know it all. That is why I rely on statistics and statements supported by other experts. It is why I have used statistics and statement from the Government Accounting Office, Chairman Bernanke’s testimony to Congress, world wide economists, the Social Security Administration, various politicians I have spoken to who have said things supported by experts, etc.
Then I look at the trends of the past and what is currently going on to see if what they have been saying is based on actual history and current events.
We do know that report after report from our Government says we are in deep trouble. They also say Congress is not taking the steps it needs to take. There is nothing that isn’t being said by many that was contained in the summaries I presented. They are summaries from our own government, world wide economists and the very news of current events bearing out what they said was going to happen.
What isn’t known is the future. We can see the current events and the trends they exhibit but that doesn’t mean the will continue or if they do, for how long nor what the final impact will be if steps are taken to change those trends. We can estimate where they will take us if no changes are made, but that is about all. Those estimations have been made by our government and have been posted. They aren’t good but they also aren’t cast in stone. They can be altered if Congress acts to change them or if world events take place that weren’t expected.
What do you define as a valid and logical argument? The use of statistics is what I like to see arguments based on but, as the book “Black Swan” demonstrates, statistics are only good for the here and now and not for the future to any certain extent. Unexpected changes seem to almost always occur to destroy the best “estimates” based on statistics. But, we can see where trends will take us without change and we can see what the effects will be under the “best of circumstances,” even if not what they will be if something unexpected makes them worse. That is the case with social security and Medicare. We know how many workers are going to retire, how many the “estimates” say we need to replace them if we don’t reform the systems. We see the estimates by the S.S. on what they say we need in immediate tax increases. We see the value of the dollar dropping just as predicted. We see the credit problems just as predicted just as the housing crisis was predicted before the crisis even began.
We see the growing reluctance of foreign nation to lend us more but also the problem of what to do with all the currency they have (93% in the hands of six nations. We see the rising price of oil, increasing demand, decline of the North Sea Field, Alaska fields, Cantarell in Mexico, etc. We see the rising credit card debt of Americans, declining job growth, statements from Paulson of a “long recovery,” etc.
On and on and on we see events unfolding around us and where they will if action isn’t taken. What we don’t know is what action will be attempted and what unexpected events may make things better or worse. But, responsible organizations plan for the worst and then if the “best” comes along, they reap even more rewards.
Our nation isn’t preparing for the worse. We see nations around the world paying down their debts with the “boom” that is going on while we expand not only our debt but our unfunded liability.
Where do you see action being taken that is improving the negative trends unfolding around us and the world that threaten our standard of living as the GAO has stated for 3 years in a row?
Jan Paul,
“Statistics are only good for the here and now and not for the future to any certain extent.”
Huh?
That is so wild that I’m going to have to do a Gene.
David out!
Wooo whooooo!
I gotta try that Gene thing!
Dog Out!
If you had read “Black Swan” you would know what they are referring to.
You can make all kinds of projections based on statistics. For example, look at the projections the S.S. has on their web site for future S.S. needs, population, retirees, etc.
But, while they give a “best,” and “worst” and “expected” selection based on current statistics, even those three choices may not be enough. They are basing their projection on “assumptions” that may or may not happen or may be worse than expected. For example, they can’t make a projection based on a “collapsed currency” since a final value is not determinable in advance.
You can only plan, based on current trends, statistics, and needs but all of those will change over time. Thus, statistics are only good for the short term projection and constantly have to be readjusted for the longer term.
What we can do, though, is take history and look at what events led to other events. We know that the fed rates when low led to “bubbles” but since each “bubble” was different, we don’t know what the next “bubble” will be. That was pointed out in several articles and books about the affect of fed rates on the economy.
So, even with statistics like what has happened in the past, due to fed rate changes, we can’t predict accurately what will happen the next time other than another “bubble” will probably appear.
However, those who follow economies and look for “early trends” that develop after a rate change, they can make millions as the trend expands. Just as we saw millions being made early on and throughout the housing bubble, that will happen again. What won’t be known is when the “bubble” will end exactly, only that it will end and that watching for signs of the end is important in wealth preservation.
Warren Buffet has made billions watching for changes in trends or for the end of trends. History does repeat itself but, not always the same way. We will have another recession, another bubble, another change in political power, another war, another hurricane, etc. We just don’t know when and statistics are unreliable in predicting when. But, they are helpful in determining what the impact of some of those events will be if, and it is a big if, the impact is similar to a previous one we have the history of.
We know that “empires” collapse, the new ones emerge. Many think the next empire will be China. Will it? How can anyone be sure? Russia is flexing its economic and military muscles again. Some say we will attack Iran. Will we? What good are statistics on the unknown long run?
Today the Canadian dollar rose again and in just 5 years has gone from 65 cents to 97 cents. What statistics demonstrated the wealth that would be preserved by investing in Canadian oil trusts in 2002? Who could have predicted with surety that the dollar would get that weak? Yes, some were predicting it based on the “trends” they were following, history of other nation’s currencies, etc. But, if our government had taken action to change that trend, all their predictions would have been useless.
Look at those who said we had the credit problem contained, using statistics to prove their prediction. Yet, when the world decided they didn’t “trust” the packaged loans anymore and didn’t “trust” other aspect of the lending and banking system, those statistics became useless in predicting the impact of what was taking place.
Instead, people like they had been using as “bears” and ridiculing on the programs like CNBC were suddenly being proven more accurate than those who had all the “statistics” to back up their statements on containment. Those “bears” had based their predictions on “human nature” more than on just statistics and though they couldn’t predict the timing, nor even the event if preventive measures had been taken, they could project the trend if left undisturbed.
Statistics are vital for the here and now and immediate future. But, you can’t rely on them as much as you can human nature and the repeating of history for the long run. That is why paying off debt and having savings is so important.
We as a person or a nation, know that hard times always return. Thus, it is always important to use good times wisely and pay off debt and build a “rainy day fund.” Then if the bad times return, we are prepared and if they don’t we are just that much further ahead. Many nations are doing just that. They are paying off their debt and preparing for the next recession or downturn or hurricane or earthquake, etc. Not for a specific event, but for any event, that might impact the economy and nation.
We all rely on statistics but some rely on them too much in predicting what the long run will bring.
You rely on experts
and you don’t acknowledge that folly
then you turn to over generalizations
all of which to support your per-set expectations of how the world SHOULD be run
Didn’t you read the dictionary? All the meanings are in there!
I don’t say how the world should be run. Why would I? I simply point out how it is run. I point out what history has revealed. I point out how insignificant man is on an individual basis to world events but how much collectively human nature does play a role in societies and trends and expectations.
Maybe that is why I enjoy life so much. I prepare for many things so that I am not surprised by much. I enjoy seeing the trends develop and play out. I enjoy seeing people in nations like those in Asia rising out of poverty. I like helping friends and neighbors and I loved running the business I had.
Life has been one blessing after another with virtually no bad times for me. However, that isn’t the case for many in the world. Many are stressed by debt, or job insecurity, or bad investments or poverty or other hardships. That is why is important we try to help those we come into contact with, as much as possible and limit government as much as possible from doing it for us, since that limits our choices in who and how we help and to what extent we help them.
Here is an “expert” that disagrees with all the people saying the dollar is doomed.
Quote:
Pity The Dollar
The U.S. Dollar has become the Rodney Dangerfield of all asset classes: “it gets no respect.” This week, it dropped to a record low against the euro when the market priced in a drop in U.S. interest rates next week. The battered greenback also hit a 30-year low against the Canadian dollar, and multi-year lows against the U.K. pound, as well as the Australian and New Zealand dollars. The U.S. dollar index, which tracks its value against a basket of six leading currencies, fell to its lowest level since September 1992.
snip——————-
The bottom line? Currencies are part of a complex system. Push one lever, and another one moves in ways that you cannot often predict. And as tempting as it is to make it into a moral issue, analyzing it through the cold, hard lens of facts rather than rhetoric — coupled with a recognition that the guy who gets it 100% is more lucky than he is smart — is the best bet. Only one thing is certain. The dollar is as hated as it has ever been in recent memory. And when everybody’s on the same side of the trade, it’s often best to bet the other way.
Sincerely,
Nicholas A. Vardy
http://www.theglobalguru.com/article.php?id=161&offer=GURU001
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In between the first and last paragraphs I provided, he points out why he doesn’t think the dollar is doomed. However, note how in the last paragraph he points out that we can’t predict what will actually happen. “Luck” in predicting, plays more of a role than being “smart” but, that is only regarding 100% correct.
The investing strategy of Investor’s Business Daily uses that same thought. Don’t try to predict what will happen but take advantage as soon as a trend emerges up or down to get in or out of an investment and diversify to avoid a sudden change in one investment that might risk all you have.
Jan Paul,
The whole point of statistics is that the individual data are too numerous to be useful. You and I cannot hold in our heads all those individual points of information. So, we use statistics.
And, just like words, statistics can be misused.
I don’t think you would condemn the entire language, so why condemn the statistical universe?
I don’t condemn statistics and use them all the time in picking investments. I use the statistics that show a positive trend for one plan and those that show a negative trend for a contingency plan. I just don’t “predict” the future as much as plan for different futures. I prepare for the unexpected as much as possible by diversifying so that if one company collapses suddenly, I don’t have too much in it or in oil or gold or high tech or one country, etc. because statistics are not good for predicting the future well enough to depend on them for investing.
That is common advice from many leading economic advisers and financial planners. It is the focus of the book “Black Swan.”
Quote:
“We, members of the human variety of primates, have a hunger for rules because we need to reduce the dimension of matters so they can get into our heads. Or, rather, sadly, so we can squeeze them into our heads. The more random information is, the greater the dimensionality, and thus the more difficult to summarize. The more you summarize, the more order you put in, the less randomness. Hence the same condition that makes us simplify pushes us to think that the world is less random than it actually is.” (p.69)
And that tendency lulls us into complacency. And that eventually results in a “Minsky Moment.” Hyman Minsky famously stated that stability produces instability, and that the longer things are stable, the greater the instability that will result, precisely because we are unprepared for it.
http://www.investorsinsight.com/thoughts.aspx
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Maudlin at Investor’s Insight covers the book in this week’s article. Maybe reading some of the quotes from the book will help you see what I mean.
There are both good and bad unexpected events and both can be taken advantage of when they happen. But, again, short term forecasting is one thing but longer term forecasts are not reliable usually.
Even if they do prove true, being prepared for the unexpected doesn’t usually hurt much or remove much profit from investing in trends as long as you move quickly when the unexpected does happen.
He refers to the current financial shakeup as being caused by “black swan” events that most didn’t see or believe were coming and thus, no move to prevent them was made.
…
Some events must happen.
Really try to wrap your mind around the idea.
Comedian is on stage, trying to tell a joke about what a hard life he had.
Today, a little kid gets too close to a hot stove, Mommy gives this big lecture. The stove is hot. Hot burns. Don’t touch the stove.
As soon as mommy is not watching, the kid burns his finger on the stove.
Now, back when I was a kid, my Mom didn’t bother with the whole “The stove is hot” routine.
She just let me touch that stove and burn myself.
“Bet you won’t touch THAT again!”
But, the event that must happen isn’t touching the stove.
(Minsky was late to the party. That’s been expressed in math long before the Chicago school mafia got together.)
Heisenberg for example