Macro Roundup

Scott Sumner, "Poverty does not cause social problems (and the cream rises to the top),"The Money Illusion, September 17, 2017, http://www.themoneyillusion.com/

"... One academic survey found more than 80 per cent of Chinese “elites” (those with income at least 12 times higher than the average in their area) are descended from the pre-1949 elite.....Liberals claim that people like Bill Gates become rich because they come from upper class families, with all sorts of advantages. Conservatives claim that even if income were made 100% equal, within a few years the rich would regain their position and the poor would fall back. Mao’s China provided a near perfect test of this theory, and we now know that the conservatives are right about this issue. The cream does rise to the top...."

Pity poorNew Hampshire:

Manchester is at the heart ofNew Hampshire‘s opioid epidemic, which has first responders, lawmakers and health care administrators scrambling for solutions before the situation spirals further out of control.

Though other New England states such asVermontandMainehave seen spikes in opioid-related deaths, the granite state ranksNo. 2 in the nation, behind West Virginia, for the number of opioid-related deaths relative to its population. It ranks No. 1, though, forfentanyl-related deathsper capita.

PS. RIP Cassini.This is my all-time favorite NYT article, and it contains almost nothing but pictures and a video. In my view, Saturn (and her moons) is the most beautiful object in the Solar System.This is also worth examining.

Of course this is not true in every single case. Sometimes highly talented people have bad luck and end up homeless. Occasionally an idiot will win $100 million in a lottery, or maybe even get elected President. But on average the more talented, more ambitious and harder working people will tend to succeed. Being born white in America does give a person some advantages, but that doesn’t really explain very much. Certainly not income gaps between American whites and Asians, or between Christians and Jews, or between immigrant blacks and American born blacks, or between Korean-Americans and Laotian-Americans, etc., etc.

You often hear a debate about what would happen if everyone suddenly lost everything, and the entire population was equally poor. Liberals claim that people like Bill Gates become rich because they come from upper class families, with all sorts of advantages. Conservatives claim that even if income were made 100% equal, within a few years the rich would regain their position and the poor would fall back. Mao’s China provided a near perfect test of this theory, and we now know that the conservatives are right about this issue. The cream does rise to the top.

“My parents and grandparents taught us a lot — not Chinese or maths but a sense of values, of how you should be and how you should treat others,” he says. They also drilled into him the knowledge they had once been very rich but everything had been taken away — a lesson all too relevant even now.

Virtually every Chinese millionaire or billionaire is self-made because capitalist reforms to the centrally planned communist economy only began in the early 1980s and did not really take off until the 1990s. But the modern super-wealthy often turn out to be descended from an earlier capitalist class. Richard is no exception. Before the 1949 revolution his family were wealthy shipowners who transported goods along the Yangtze river and the ancient imperial canal from Beijing in the north to Hangzhou in the south. They lost everything when the communists took over and were forcibly resettled at least twice. One academic survey found more than 80 per cent of Chinese “elites” (those with income at least 12 times higher than the average in their area) are descended from the pre-1949 elite. Richard puts this down to “family culture”.

Yes, that’s anecdotal, but consider this:

Now he is 43 and worth nearly $11bn.

Again, like so many of China’s new titans, Liu’s family was so poor that until he went to university aged 18 he only tasted meat once or twice a year. His family, peasant farmers in arid coal country, 700km south of Beijing, had a few rice fields but they also had to hand over the crop to the government; these were the dire days after the Cultural Revolution. “From June until September we were able to eat corn — cornmeal porridge for breakfast, corn pancakes for lunch and dry cornbread for dinner; cornbread so tough it made your throat bleed,” he tells me. “The other eight months we ate boiled sweet potato for breakfast, sweet potato pancake for lunch and dried sweet potato for dinner.”

Liu Qiangdong is making up for lost time — and with vertiginous speed.

Liu Qiangdong is one example of a Chinese poor person who did not become a heroin addict:

Of course it’s silly to argue that affluence causes addiction—correlation doesn’t prove causation. But it’s equally silly to suggest that people in West Virginia become drug addicts because they are poor. There are a billion poor people (by American standards) in China, and very few are heroin addicts.

New Hampshire also has a very low level of inequality.

New Hampshire’s workforce is also among the best-educated in the country, according to previously released census data. Better-educated workers tend to make more money.

One of the chief drivers of New Hampshire’s high median income is its poverty rate, which is the lowest in the nation. Only 6.9 percent of the state’s residents live below the poverty line, compared with a national average of 13.7 percent (in Mississippi nearly 21 percent of people live in poverty).

The Granite State’s median household income last year was a whopping $76,260, nearly 30 percent higher than the national median of $59,039, according to the Census....

New Hampshire.

Which U.S. state had the highest median income in 2016?...

Pop quiz:

So what makes New Hampshire so special? Why so many deaths of despair? Perhaps because it has arguably themost successful economy in the entire world, with extremely high income, high education and extremely low rates of poverty:

new Summers (paper get's released today)

hmmmm just perhaps the US economy is slightly different then the US economy 80 years ago, "...“Having too little demand,” as Summers says, “is now as much of a problem as having too much demand.”..."

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There is no reason to accept mediocrity as the new normal.

Economists sometime use a rubber band as a metaphor for the economy. The further it’s pulled in one direction, the more strongly it snaps back in the other. The metaphor was apt in the 1930s. But it’s not apt now. After the worst downturn in 70 years, the American economy — like much of the world’s — has been plagued by mediocre growth.

“Having too little demand,” as Summers says, “is now as much of a problem as having too much demand.”

Instead, many policy makers and economists continue to operate as if the Great Recession never happened and their prior beliefs still hold. They grew up believing that the big economic risk was an overheated economy, because that was the great problem of the 1970s. As a result, many are obsessed with the dangers of high inflation and large budget deficits. And those dangers are real — but they’re not the main dangers facing the economy now.

In their paper, Blanchard (a former chief economist at the International Monetary Fund) and Summers (a former Treasury secretary and White House adviser) argue that it’s time for the country to take its long malaise more seriously. How? Economists should question long-held assumptions, as they did after both the Depression and the 1970s stagflation. The Federal Reserve — which has repeatedly underestimated the economy’s weakness — should consider bolder policies, like raising inflation. Congress and the White House should consider spending more money to create decent-paying jobs, despite legitimate concerns about the federal debt.

By 2019, G.D.P. per working-age adult is likely to be only 11 percent higher than when the crisis began (barring an unexpected growth surge or a recession). That’s a miserable growth rate over an extended period. Yes, the economy has done fairly well for last year or two, but not nearly well enough to make up for the long slump, especially because growth was also mediocre in the early 2000s.No wonder so many Americans are angry and frustrated.

This time, the country never suffered 25 percent unemployment or nearly the same amount of misery — thank goodness — but it has endured years of weak growth following the crisis. You can see this weakness in the relatively flat yellow line.

Gross domestic product, or G.D.P., measures the nation’s total output, which largely determines its standard of living. And the decline in output during the Depression was clearly much worse than in recent years, as you can see from the gray line. But the economy eventually bounced back, first with rapid growth in the mid-1930s and then during the war mobilization of the early 1940s.

By 2019, a prime measure of the economy’s health — gross domestic product per working-age adult — will likely have recovered less in the 12 years since the crisis began than it did during the 12 years since the start of the Great Depression. When I saw a chart making this point, in a new paper from Olivier Blanchard and Larry Summers, I was stunned. The chart is reproduced above.

Yet our crisis isn’t over. By almost any measure — employment, income, net worth, total output — the economy is still suffering. And now a grim milestone is coming into view:

Since the first rumblings of the financial crisis, in 2007, people have comforted themselves by looking back to the Great Depression and thinking about how much worse things could be. It’s true, too. Our modern economic crisis has been far less severe than the Depression.

We’re About to Fall Behind the Great Depression

David Leonhardt, "We’re About to Fall Behind the Great Depression,"New York Times, October 12, 2017, https://www.nytimes.com/2017/10/12/opinion/great-depression-recession.html