A Race of Morons
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A Race of Morons
Oblivious to the rising tide of debt, deficits and defaults, mankind stumbles toward disaster...
Bill Bonner, reckoning today from Poitou, France...
A man who takes what is’n his’n.
Gives it back or goes to pris’n.~ Daniel Drew
We have an old friend. One of the smartest men we’ve ever met. But he’s very down on his luck. His businesses failed. His marriages failed. His investments failed. And now, his health is failing too.
“How did it come to this,” he wonders. “How could I be such a moron?”
Today, we wonder for the whole nation.
This just in from Business Insider:
US households are on the brink with excess savings likely to be depleted by month-end, San Francisco Fed says
Savings built up by American households during the pandemic are all but gone, the San Francisco Fed says.
US household savings have fallen from a record $2.1 trillion in 2021 to around $190 billion as of June, per their data.
It may indicate a wider squeeze for Americans – who must contend with the highest interest rates in 22 years.
Dot… to Dot… to Dot…
And then, this little item came in from Fortune:
Nearly two-thirds of Americans are living paycheck to paycheck, study finds
Research from LendingClub finds that 61% of adults were living paycheck to paycheck as of July 2023, a two-point increase from the previous year. That comes even as inflation rates have dropped from 9.1% last July to 3.2% this year.
The breakdown of people living paycheck to paycheck was fairly evenly spread. Low-income consumers — those earning less than $50,000 annually — saw the biggest increases, rising from 74% in July 2022 to 78% in July 2023.
What happened? How did it come to this?
Is this just the nature of things…that the middle classes are always “on the brink” of ruin? Or is it a feature of public policies?
Here’s another dot to connect:
The Fed's balance sheet reductions have hit $1 trillion…
Where once the Fed's portfolio held around $8.4 trillion in assets, the institution's System Open Market Account now shows that this has fallen to just under $7.4 trillion.
These balance sheet reduction efforts are more commonly known as quantitative tightening, and are a strategy deployed by the central bank to drain excess liquidity from markets.
Giveth…and Taketh
The Fed giveth and the people are happy. The Fed taketh away and the people hurteth.
But what is it that it gives and takes? The Fed does not print ‘money.’ And when it ‘reduces its balance sheet,’ it does not take back the money it didn’t give out in the first place.
Money is a stand-in, like a claim ticket from a parking garage. It represents real wealth. The Fed has no pink Cadillac…no black Mariah…no silver Ford F-150. It comes onto the lot with nothing. And then, it prints up a claim ticket, giving the holder the right to take any car on the lot.
How could anyone ever think that was going to work out?
The Fed offers credit, not money. Money is a claim on real wealth, already in existence. Credit is all “on the come.” It claims wealth that may or may not come into being…and draws on it in the present. The poor borrower drives off in a newish Mercedes. But it is not his car. And sooner or later, he’ll have to return it.
This is not just a theoretical matter. A man who spends all his savings is broke. Busted. He has nothing. Too bad. So sad.
But the man who borrows…spends…and can’t pay back is not only a disappointment to himself, but like a soldier who loses his nerve on the battlefield, he’s a danger to the whole army.
Debtors have creditors. The creditors have creditors of their own…and bills to be paid…and holidays planned months in advance…and, if they are banks, federal regulators who will shut them down if their accounts are out of order.
Apparently, US households are down to their last dime. And here comes the Repo Man. The Washington Post:
More Americans are falling behind on their car loan and credit card payments than at any time in more than a decade, a troubling signal of consumer stress as higher prices and rising borrowing costs are squeezing household budgets.
Self-Inflicted Wounds
How could that be? As we saw yesterday, the typical working man (and woman) is actually making less per hour than he did in 1966.
Basic commodities are cheaper (in terms of hours of work needed to buy them). But finished products – those that he actually buys…those that should benefit from more technology – are much more expensive.
And GDP growth rates have come down…decade after decade…from the ‘60s. We used to expect growth rates of 3% to 5%. In 1966, US GDP rose more than 6%. In 1984, it went up by more than 7%. Now, we’re lucky if we get 2%. For the last 10 years, GDP growth has averaged only about 1.5%.
The numbers are always a little slimy and slippery. But for the purpose of today’s cogitation, let us imagine that we are right: 90% of the population has gotten poorer, not richer, over the last half a century. They owe $12 trillion on their houses. Another trillion on their credit cards. And now, it’s time to return the Mercedes
And let us set up our wondering for tomorrow: what kind of morons would do such a thing?
Regards,
Bill Bonner
A Race of Morons
Bill,
We thank Bill Bonner for recognizing time prices as an important way to measure our standard of living. We also grasp and respect his critiques of our claims of global “superabundance.”
As your scathing and scintillating posts depict—they are my favorite reading on the net (GG)—most economic claims these days are hokum.
We agree with you that current monetary measures and government data and economic concoctions such as GDP, CPI, GDP deflators, and such convey descriptions and calculations of value that tend to conflict with reality. GDP, for example, presumes that public “goods,” such as university and corporate ESG administrators, military outlays in the Ukraine, and subsidies and mandates related to COVID and climate change, are all worth what they cost. Meanwhile, we have shown that private goods are gauged by inflation data that miss much of the economic and technological progress of recent decades and even centuries.
We seem to agree on the negative impact of much government spending, but disagree on the value of private output.
As I (GG) have been arguing for a decade or so, money is ultimately tokenized time. Time prices start with the idea that while we buy things with money, we really pay for them with our time. When you run out of money, you are running out of the time to earn more money. The actual cost is how much time it takes to earn the money to buy something.
This means there are actually two prices: money prices and time prices. Money prices are expressed in dollars and cents while time prices are expressed in hours and minutes. Converting a money price to a time price is simple. Divide the money price of a product or service by your hourly income.
Time Price= (Money Price)/(Hourly Income)
When I (Gale Pooley) was young, my grandpa told me that when he was a kid, Hershey bars only cost 5 cents. Today they cost around $1.32 at a local Walmart. While it is true that these popular chocolate bars have gotten more expensive, the real question is “Have they become more or less affordable?” To answer this question, we have to compare the candy bar price to a person’s hourly income. We have to calculate the time price. How much time did it take grandpa to earn the money to buy his candy bar back in 1900 versus the time it takes today?
As an unskilled worker Grandpa was earning around 9 cents an hour in 1900. This means the time price of his chocolate treat was around 0.56 hours or 33 minutes. Unskilled wages are now closer to $15.72 an hour. This would put the time price for unskilled workers at 5 minutes. For the time it took grandpa to earn the money to buy one Hershey bar, you get over 6.6 bars today. We enjoy over 560 percent more chocolate abundance than grandpa.
We can calculate time prices for all products and services, at any time, in any country, with any currency. Time prices are simple and elegant and intuitive. In our books Superabundance and Life After Capitalism, we look at the time prices of hundreds of different products and services.
We compared the time prices of 42 individual food prices from 1919 to 2019. We found that for blue-collar workers the time prices had fallen by an average of 91.2 percent. This means that for the time it took to earn the money to buy one item in 1919, you would get 11.32 in 2019. Food abundance has been growing around 2.46 percent a year, doubling every 28.57 years.
You write: “Basic commodities are cheaper (in terms of hours of work needed to buy them). But finished products – those that he actually buys…those that should benefit from more technology – are much more expensive.” You cite pickup trucks and housing.
What about pickup trucks? In 1948 the price of a new Ford was $1,279. According to MeasuringWorth.com, a highly respected source of historical economic information, blue collar hourly compensation (wages and benefits) was around $1.41 per hour. This would put the time price at 907 hours. Blue collar hourly compensation is closer to $36.50 today, so the time price of a new $47,000 F-150 is around 1,288 hours. While the time price has increased by 42 percent, pickups today are much better in terms of mileage, comfort, reliability, power, and safety. Most people are happy to pay 42 percent more for all of these features. Adjusted for time, the 1948 pickup would sell for over $33,000 today. ($47,000 ÷ 1.42). The new F-150 has to be worth $25,000 more than the 1948 model.
Another way to compare is to look at the trucks China and India build that are similar to the 1948 in terms of quality and performance and safety. They sell for around $10,000. At $36.50 an hour, the time price is 274 hours. This is 70 percent cheaper than the 1948 model. Both ways of analyzing pickup truck abundance suggests that this classic American icon is becoming more abundant.
What about housing? First, we must recognize that real estate is not just about location, location, location. It’s about financing, financing, financing. A 3 percent mortgage is much different than a 7 or 13 percent mortgage. We also note that houses are much larger today than a hundred years ago. With smaller family sizes the square foot per person is much higher. It is payment divided by the square footage per person that ultimately counts. Houses in 1923 averaged around 742 square feet. This would put the price per square foot of the $3,200 house at $4.31. Blue-collar workers were earning 48 cents an hour putting the time price per square foot at around nine hours. According to the U.S. Census Bureau the average square footage of a new home is around 2,440. At $36.50 an hour, this would put the time price of a $390,000 home at 4.4 hours per square foot. This is over 50 percent lower than the 1923 house. This is before we consider any differences in quality or interest rates.
value.
We agree with Mr. Bonner on the egregious mistakes and depredations of monetary policy and debt. However, the expansion of capitalism around the globe has led to huge gains in productivity and improvement in time prices. We very much appreciate Mr. Bonner’s consideration of our approach to measuring with time prices and hope for fruitful further exchanges in the future.
George Gilder
Gale Pooley
It is likely that the USA has the worst collective case of attribution bias in world history. From the end of WWII into the 60s, America thrived as it never had before, soaring to new heights of achievement and prosperity, because we had no serious competition, given how WWII played out. We acted as if, and told ourselves accordingly, this unique condition was a result of some sort of virtue or excellence on our part. It was inevitable that the rest of the world would eventually catch up, and then what? To keep up the charade, Mr. Nixon closed the gold "window", and the USA began its madcap money adventurism. I was not present when those discussions were held and those decisions were reached, but I would bet all I have that those who undertook those actions never considered in their minds that the pretense and charade would continue for nearly 60 years and reach such absurd ends; yet, here we are. We are living insanity, and no one wants to pull the plug for fear of what will happen, while at the same time each of us understands it cannot, and will not, continue. Best always. PM