Shocked and Persuaded


Separating Fact From Fiction

2.8% and 170,000

These are the two numbers Wisconsin man-child Republican Congressman Paul Ryan is touting for his “A Roadmap for America’s Future: Version 2.0”. The first has to do with what he and the Heritage Foundation project will be the rate of US unemployment and the latter is what his manifesto says will be average US economic growth per capita by 2083 or put more magically a nearly four-fold increase over current US GDP per capita (See Page 30).

These are nonsense numbers and the kinds of voodoo economics that convinces “middle America” that Republicans like Ryan are on their side when as point of fact he and his fellow Wisconsin governor Scott Walker have no problem putting out this kind of BS with one hand while simultaneously taking in the largess of the Koch Brothers with their other hand. Read the rest of this entry »

Chart of the Day and it’s a doozy


So in the past here and elsewhere I have commented on the general lack of relevance to real world prosperity reflected in the classic

GDP = C+I+G+(Exp-Imp)

For so many important reasons GDP sucks not the least being its unwillingness or inability to account for the monetary value of raising children or for that matter ecosystem services. One estimate that does a far better job of addressing not these issues but inequality is the Gini Index. A while back I discussed the bottom-left to upper-right trajectory of this index here in the US at a rapid and disturbing pace. The higher the number the more inequality exists. Simply put it is a number between 0-1 and at absolute Zero it means perfect equality and 1 means that all wealth is perfectly aggregated at the top among the types of elites that attend the Davos World Economic Forum, or TED, or whatever gathering you want to name including the Koch brothers recent get-together in Palm Springs, which was by invite only and the only requirement was that you be worth 1 Billlllllllion dollars!

Anyway tangents aside. I was originally disturbed by the slope of the Gini Index here in the US AND NOW……….I am even more so. I just got my hands on the index back to 1913 courtesy of an obscure paper by Eugene Smolensky and Robert Plotnick at UCal Berkeley (Yeah I know liberal haven but the data don’t lie folks!!!). Take a look and keep in mind the trendline just demonstrates the clip at which inequality is increasing annually, which at this point is about 0.47% per year. Soon we’ll be in Robert Mugabe and Myanmar territory….NO SERIOUSLY WE WILL!!

Wealth inequality has not done wonders for Zimbabwe, Myanmar, North Korea, etc., what makes us think it is a good thing for Ground Zero of Laissez-Faire capitalism? American Exceptionalism will turn the corner and run into reality at some point.

Efficient Marketeer And The Rest Be Damned

This is something I wrote in response to an article by Dr. Jagdish Bhagwati and Arvind Panagariya at Project Syndicate. I love this site and really the thinkers and practitioners run the ideological gradient. Read the rest of this entry »

Motor City BOTE

BOTE stands for Back-Of-The-Envelope and is a common phrase applied to macroscale or overly coarse calculations done kinda haphazardly. Well given this caveat I came across an article from The Telegraph (UK) titled “Detroit to Bulldoze Thousands of Homes in Fight for Survival”, which quoted the following statistic:

“Almost a third of the city’s 139 square miles is vacant or derelict, though its land area would comfortably fit Manhattan, San Francisco and Boston, cities with combined populations of three million.”

I thought it would interesting to apply some of my dissertation data to figuring out how much of Detroit’s CO2 footprint could potentially be offset if this land was reforested. So, here it goes step by step.

(33%*139 Sq Miles)=45.87 Sq Miles of vacant or derelict land

Convert to Hectares=45.87*259>11,880 Hectares

Hectares to Square Meters=11,880*10,000>118,803,229 Square Meters

Grams of Carbon per Square Meter Per Year (From my Thesis work we assume the average for Great Lakes forests is 10,849 g C m-2 yr-1)=118803229 Square Meters*10,849 g C yr-1>1,288,896,240,464 g C m-2 yr-1

Metric Tons Per Year=1,288,896,240,464 g C m-2 yr-1*0.000001>1,288,896 Metric Tons of C captured Per Year IF the 45.87 Sq Miles of vacant or derelict land was reforested!

NOW lets put this number in perspective relative to Detroit’s actual emissions.

If we assume Detroit’s population (For Now!) is 951,270 and residents of the city emit approximately 23.4 Tons of CO2 per person per year that comes out to 22,260,764.4 Tons of CO2 per year for the city of Detroit, which means……..

The figure calculated above for potential carbon captured by reforestation of vacant and derelict land (i.e., 1,288,896 Tons of CO2 per year) equals 5.80% of total city-wide emissions. This number while not jaw dropping is far from trivial and any efforts to implement such plans should be encouraged locally and nationally as 5.8% of anything at that scale adds up and would greatly increase the quality of life in Detroit. Similar projects are sprouting up in neighboring F lint, Michigan as well as places as far off as Chilibre, Panama. Likewise we have data on those areas as well and could do similar BOTEs in an effort to quantify the impact of reforestation, both above- and belowground.

We have an interesting love affair with shopping in this country and I thought it would be illustrative to quantify its influence on our land to capture carbon. First lets quickly look at how much we love shopping and how much our economy (and by association China, Japan, the EU, etc etc) depend on our insatiable appetite for stuff. It is true that we have come down off our Great Depression high of 83% Consumption as  a percent of GDP, but for the better part of the last 63 years we have maintained a relatively static 65% of GDP attributable to consumption.


However, this figure has risen substantially in the last 20 years from 62% in 1981 to 70.8% in 2009.


You might say well what does my local strip mall have to do with CO2? Well your local strip mall displaced some sort of native ecosystem that, up until the big trucks and earth-moving equipment came, was drawing down CO2 via photosynthesis and decomposition of biomass to produce soil carbon.

Well that has had a cumulative effect and I have attached a couple of graphs to demonstrate this phenomenon. Using Gross Leasable Area (GLA in sq feet) per person data back to 1990 we can calculate above- and belowground carbon displacement via shopping center expansion (Blue Line), which sums to about 218 Million Metric Tons between 1990 and 2009, which when subtracted from Total US CO2 Emissions gives us the inset in the figure below.


How you might ask does this relate in-terms of percentages? Well it turns out it is quite similar in magnitude to what I described for Detroit. If we assume – based on EIA assumptions – that Residential emissions is 6.65% of the story here in the US with respect to CO2 emissions than the above removal of native ecosystems for shopping centers translates to anywhere from 2.78 to 3.31% of Residential CO2 emissions across the entire US. However, if we had implemented the type of plain they are considering in Detroit across all fifty states beginning in 2005 we would have had the opportunity to “offset” 3.13% of our emissions per year as opposed to 2.85% between 1990 and 2004. You may say what is the big deal about 2.85 to 3.13%? Well when you consider we are measuring our fiscal and monetary peril here in the US with values like 3 to 12% of GDP and the fact that US GDP is expected to grow by 3.0% in 2010 v. 0.18, a decline of 1.83, and 2.53% in 2009, 2008, and 2007, respectively…Then the numbers I present here start to take on a whole new meaning. The harm inflicted by shopping centers – never mind the removal of capital and liquidity from local markets via large multinationals like Wal-Mart and Best Buy – is not just skin or in this case soil surface deep. It impacts the ability of communities and watersheds to withstand flooding, retain nutrients that would otherwise pollute reservoirs and aquifers, moderate temperature and moisture volatility, and propagate a sense of ownership among residents. The data back it up. Chalk another one up for BOTEs!


Too Big To Fail

Size is not the appropriate restriction,” said Senator Mark Warner, Democrat of Virginia and a member of the banking committee, who helped draft the regulatory bill. “The real question should be the level of inter-connectedness and the risk-taking we saw in the crisis of 2008.” Mr. Warner added, “The Dodd bill does provide ability for these banks to be broken up.”

So let me see if I have this straight Senator Warner your not concerned about the size of bangs with respect to Senator Kaufman and Senator Browns Safe Banking Act of 2010 – which would have limited the size of individual bank’s assets to 3% of GDP (6 Largest banks currently account for 63% of GDP) and the all important leverage factor to 16 to 1 (It had risen to 30 & 40 to 1 at places like Bear Sterns and Lehman) –  but you want to minimize inter-connectedness?

Well let me ask you a simple question: If you go to a family reunion and their are only 6 Warner’s – or whatever your mother’s maiden name was – at the shindig are you more or less likely to be “inter-connected” with those individuals than if that reunion instead included 100 of your nearest and dearest relatives?

See this is classic talking out of both sides of your mouth. As Stephen Roach likes to say you can’t have both decoupling and globalization at the same time. Pick your Poisson Senator Warner: Inter-connectedness or TBTF?

An Asymmetrical Gini In The Bottle

Ever heard of the Gini Coefficient? Yeah I thought not who has and frankly who cares? Well in reading Stephen Roach’s “Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization” I came across this measure of income dispersion within and across economies of all shapes and sizes. When I went to the US Bureau of Labor Statistics looking for a historical record of US Gini coefficients I was disappointed (but not surprised) to see a very disturbing trend developing.

First let me note that the Gini Coefficient is a decimal between Zero and One (The Grey Between Binary!), with One being absolute inequality (i.e. The Rich Have Everything) and Zero being completely equitable distribution of income across any given economy.

What I saw when I plotted the Bureau of Labor’s data was a sharply upward trending slope from left (1967) to the present (2007). At the current trend we will have a Gini Coefficient of 0.537 in 2025, 0.652 in 2075, 0.767 in 2125, and 0.939 in 2200. That is unless the world ends. OR H1N1 kills us all. This should disturb those on the left and the right equally, because believe you me the folks benefiting from this trajectory have no religion or aspirations for any type of greener planet, rather they are driven by Financial Weapons of Mass Destruction and really big yachts. This points towards a New America, which when we think about income equality or meritocracy we see that it is becoming more and more a Zero Sum Game or what what 18th/19th Century British economist David Ricardo called Comparative Advantage (See Below). Although in this instance we are talking about intra-country or -region income disparities.

Comparative Advantage (According to the US Bureau of Labor Statistics): When one nation’s opportunity cost of producing an item is less than another nation’s opportunity cost of producing that item. A good or service with which a nation has the largest absolute advantage (or smallest absolute disadvantage) is the item for which they have a comparative advantage.

I think that this trend and the data it describes to are two more examples of why across-the-board capitalism does not work. Do aspects of capitalism work? OF COURSE no one (not least of which me!!) is saying differently, but to assume that any “-ISM” in its entirety is suitable for an entire country or across the board is foolish, arrogant, dangerous, and short-sighted. BEWARE OF THE -ISM PEOPLE!!!


Lets briefly put this trend and Gini in some perspective. First it is worth noting where the US sits globally with respect to Gini. As you can see below we (US in Red) are somewhere in the middle of the 153 global average of 0.409±0.103. Some of the esteemed nations with a more equitable distribution of wealth include Russia, Myanmar (That’s Right Myanmar!), Cuba, and Saudi Arabia. Our neighbors on the Gini scale include Irag, Petro States like Iran and Nigeria, not exactly paragons of freedom. Given the projections I calculated above we will join nations like Zimbabwe (Hint: You know the nation with inflation >1 quadrillion %) by 2025, systemically corrupt nations like Sierra Leone, Equatorial Guinea, and Namibia in 2075, AND…..Drumroll Please…………..We will be off the current distribution by 2125 at a Gini of 0.767. Not bad huh? So with all the huffing and puffing from the right about our dept and deficit climbing as a % of GDP I think it is worth paying credence to this much maligned index, given its current value and projected trend. Sure we need to consume less and save more, but the fact is that many in this country are under the impression that “Compared with people in other rich countries, Americans tend to accept relatively high levels of income inequality because they believe they may move up over time. The evidence is that America does offer opportunity; but not nearly as much as its citizens believe.”


So the final point that many on the way- and intermediate-right, along with countless centrists and Efficient-Market Hypothesis ideologues make is that this type of asymmetrical wealth distribution is a product of and promoter of competition. The idea that a rising tide lifts all boats with respect to consumption, investment, government spending, and export-import (ie GDP = C+I+G+(Exp-Imp)). However, if we look at GDP as a function of the Gini Index across the aforementioned 153 nations we see ZERO RELATIONSHIP! Let me say that again there is no relationship between an increasing Gini (ie, Rich Getting Richer!) and GDP growth. So, what are we to make of this? Well the answer is that The Great Decoupling with respect to income inequality has spread geographically and will prove insidious and along with an increasing redistribution of water rights another reason why bottom-up “concern” should and will grow. We’re not talking about astroturf revolution, but rather empirical and well-thought out multi-angle reform.


EMF? Where will it end?

There is now very serious talk about a European Central Fund, which would largely be supported by the profligate ways of Eastern and Southern Europe.

I wonder how this EMF would be funded? Would it be as its supporters claim a function of a 1% tax on all money a given EU country has about the Maastricht Treaty Debt and Deficit to GDP requirements? How long would a country have to be above the 60 and 3% thresholds, respectively. I feel as though countries with stout track records would be given substantial temporal leashes while the PIIGS would be put on a spit and roasted within months and prayed upon by speculators. Look if you go ahead with this EMF and the Lisbon Treaty you are opening yourself up to a common currency aggregate that has no ceiling (i.e., a global currency). Talk about too big to fail! Or is it too interconnected to fail?

“The EMF could be run along similar governance lines to the IMF, by having a professional staff remote from direct political influence and a board with representatives from euro-area countries. Just as the existing fund does, the EMF would conduct regular and broad economic surveillance of member countries. But its main role would be to design, monitor and fund assistance programmes for euro-area countries in difficulties, just as the IMF does on a global scale.”

No way does the highlighted part of the above quote from The Economist article happen! We have reached a point as Steven Roach of Morgan Stanley noted in “Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization” where the line between fiscal policy, monetary policy, and politics is imperceptible. It is as if we are redressing the church v. state debate even though we know there is not such thing.

“Countries could, for instance, be charged an annual contribution of 1% of their “excess debt”, the difference between their actual level of public debt and the limit of 60% of GDP agreed on as one of the Maastricht criteria for euro entry. A similar charge could be levied on governments’ excess deficits, the amount exceeding the Maastricht limit of 3% of GDP. Under these parameters the EMF would have accumulated about €120 billion ($163 billion) over the past decade, enough to cover the likely costs of rescuing Greece. These levies are not so big that they make it impossible for offenders to get to grips with their finances. Under this scheme the Greek contribution to an EMF would have been 0.65% of GDP in 2009.”

Another canard. We are being guided by captains that would like to steer the ship towards a single global currency, which as I said would be the ultimate paradox given everyone’s fascination with Too Big To…..(Fill in the blank!).

Causation Vs. Correlation!

From The Economist January 14th 2010

“Liberal democratic governments can make all manner of blunders, but they are less likely to commit mass murder. Amartya Sen, a Nobel prize-winning economist, has famously argued that no country with a free press and fair elections has ever had a large famine. And research by those three CFR scholars found that poor autocracies were at least twice as likely as democracies to suffer an economic disaster (defined as a decline of 10% or more in GDP in a year). With no noisy legislatures or robust courts to hold things up, autocracies may be faster and bolder. They are also more accident-prone.”

I wonder how someone who states that “…no country with a free press and fair elections has ever had a large famine.” wins a Nobel in anything let alone theology…..I mean economics. This is the argument you attributed to the economist Amartya Sen. Does Mr. Sen and The Economist for that matter not understand the dangers associated with conflating causation and correlation? Large famines are largely functions of climate, external demand, and agricultural subsidies. Are they related to free press? Doubtful if there is a linear connection. Are they related to fair elections? Probably but this is a correlation that I would not get passed peer-review.

Peak GDP

It seems that we may be hitting the point the Romans and many others inevitably approached and violently surpasses. It is the point at which our cumulative GDP growth has flattened out while population growth continues to grow albeit at a mild rate.

To the right you see a graph of the ratio of Cumulative Annual US GDP to Population Growth from 1930 to 2008.


This ratio did not become positive until 1940 on the eve of WW II and spiked at the war’s conclusion in 1944-45. At this point this ratio began a steady decline to a low of 4.52 in 1963. While it experienced a bump between the 60s and late 90s it has remained relatively flat between 1950 and 2008 deviating very little from it’s ~60 yr average of 5.43.

Another way of looking at this “Economic Ceiling” is from an agricultural perspective. I have plotted the Yield to Nitrogen (N) Applied ratio for Corn here in the US from 1943-2007. On the Primary Y- and X-Axis the relationship for the raw data is shown, while the Secondary Y- and X-Axis depicts the relationship on a log scale. We see two things here: 1) the shape of the relationship is dependent on how the data is presented and 2) the raw data demonstrates quite conclusively that we have reached a similar asymptote to that described above for our economy relative to population growth. This is a disturbing trend given our over reliance on corn here in the US. GMOs and fertilizer technology will only be able to do so much in fighting this apparent biological inertia. The rest of the quagmire will require a new paradigm if it is to be fixed. That should include a gradual transition to a more diverse produce and dry goods food economy in keeping the the proselytizing of Michael Pollan. However, alot of this will involve tough medicine, which should start with decreasing national obesity from it’s current rate of 33% to 15% or what it was in 1980. This may sound quixotic but really it is a necessity and weening ourselves off our addiction to High Fructose Corn Syrup would probably put a 5-7% dent in our national obesity on it’s own.


It is high time we start to seriously discuss the idea that Eugene Fama’s “Efficient Market Hypothesis”, Adam Smith’s “Invisible Hand”, and Milton Friedman’s “Shock Doctrine” are a thing of the past designed solely to benefit the top 0.1-0.5% of the G20, G8, or OECD. We must turn our attention to what I will call an Asymptotic Economic Hypothesis or the Steady State Economy ( acknowledging the ubiquitous influence of Keynes’s “Animal Spirits” and the fact that nothing grows forever.

economic-growthIt would be absolutely acceptable if we didn’t shift towards an economy with strict ceiling and floor constraints BUT if we do our children will be very mad at us!

A billion here, a billion there, pretty soon it adds up to real money.

This is a quote used more now than everything sans “Green Shoots” right now and it is purported to have been spoken by former Illinois Senator Everett Dirksen, although there is no question as to whether he ever said or wrote such words. Regardless of whether Mr. Dirksen did or did not construct this phase it seems an interesting thought given that the Obama administration is now discussing upping US food and agricultural aid to nations around the world to $5 billion annually.  Under the Bush administration this figure was about $2.3-2.7 billion. Now given the quote attributed to the late senator from Illinois this sum should real $$.

I and others contend that no where is this statement more false than with respect to international aid. Should we look to solve all the developing world’s problems, whether they be health or technology? Absolutely not these folks need to stand on their own 2 feet and it is time to clip their wings with respect to funding for weapons and war related infrastructure. However, the figures mentioned above account for 0.0181-0.0335% of our GDP ($14.93 Trillion FY 2008). At the ultra-macro level the US donates about 0.2-0.4% of GDP in toto ( is markedly less than the 0.7% of GDP agreed to by rich nations at the UN General Assembly…… 1970! Yes it is true we donated $25 billion in 2008 as Official Development Assistance (ODA), which is Germany and the UK combined and realistically dwarfing every nation on an absolute scale. However, as any economist or pragmatic person would admit absolute values don’t say much, while relative figures say a ton.  The US ranks dead last among the 22 rich nations as a % of GDP. Pekka Hirvonen called this Stingy Samaritanism. The only nations that exceed the 0.7% target are Sweden, Luxembourg, Norway, Denmark, and the Netherlands (0.8-0.99% of GDP)……………..Damn Socialists!

Lets just quickly contrast this with Defense spending, which was 4.7% of GDP last year and has a 45yr average of 5.3% ($702-792 billion annually) ( So, why don’t we just take 0.4% of defense and transfer it to international aid. This would still leave 3.73-4.33% of GDP for making tons of bombs, guns, missiles, tanks, etc. allowing us to continue to engage in mismanaged, ill-conceived, spineless, and pointless wars. How can you argue with that Bush, Cheney, et al?


Further folks like Peter Orzag the Director of President Obama’s Office of Management and Budget has noted that if we don’t get healthcare under control it will mushroom from 5% in 1960 to 20% of GDP sometime between 2020 and 2040. If we were to actually shear some of the fat from this beast we could give more generously, but that might actually require a national healthcare option that would apparantly run private industry out of business. However, this is hard to reconcile given that most in the private sector feel the US government would do a horrible job if they got in the business of healthcare. If this is so than what’s the problem?

We have a TRUE Axis of Evil in this country  Defense, Banks, and Healthcare/Big Pharmaceutical. Cutting these folks down to size even if that meant a 5-10% decrease in their nefarious profits, would permit the US government to cut taxes for Joe the Plumber (ie The Common Man and Woman!) and permit more giving to those around the world in desperate need of real aid. Not food in boxes or finished product but rather the tools and knowledge to make their own stuff and feed themselves by themselves.

I must admit rather reluctantly that I did a rough calculation of how much I gave in aid/donations last year and it came out to approximately 1-2% of my income. That is a figure that I really don’t know how to square with others as the data for individual households in this country is scant with respect to charitable donations.

So, it seems to me that a billion here, a billion there does not equal real money when it comes to international aid. This country owes it to the world to stop exporting so much defense related technology and get going on the stuff that makes countries function in the interim. That includes alternative NRG, agriculture, smart-growth, etc. and the myriad skill-sets they need to stop relying on external aid. Its the least we could do.