Four Charts say it all

Manufacturing jobs:

Current Account deficit:

US government debt:

Public AND private debt:

The last three charts have one thing in coming — there is a dramatic change after 1980.   That’s when we start going into deep government and private debt (you can’t just blame Washington), and when our current account started to go into a severe deficit.   At the same time, our manufacturing production continued to decline (graph one).

What this means is that for thirty years we’ve been borrowing (more debt) and using it to purchase foreign goods (the current account deficit is mostly the trade deficit).    Our productive capacity has continued to decline even as we consumed more.

These are trends people noticed — even I was talking about these trends in the mid-nineties.   Perot’s Presidential run in 1992 was driven by debt concerns.   Yet we kept going because people were making money, the media made it sound like capitalism works magically, and consumerism overtook the country.   Both parties share blame equally.   Yeah, partisans can make a case one side is worse, but that’s not useful — better to say responsibility is shared and address the deep cultural and structural barriers to building a healthy economy.    The trends shown on the charts were unsustainable, and in 2008 the painful rebalancing began.  It could continue for quite some time.

No time to write more today, so I thought I’d let the charts do most of the talking.

Sources:

http://www.marketwatch.com/story/the-cost-of-soaring-private-and-public-debt

http://www.brillig.com/debt_clock/faq.html

http://www.creditwritedowns.com/2008/05/current-accont-deficit.html

http://tpmlivewire.talkingpointsmemo.com/2010/08/chart-of-the-day-heres-the-trend-obama-is-fighting-if-he-wants-to-save-american-manufacturing.php?ref=fpi

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  1. #1 by renaissanceguy on September 1, 2010 - 21:12

    Yes, debt is probably the biggest problem facing our country, as you say.

    Thank you for saying that both major parties are at fault. I agree.

    Yes, the media are complicit, as you say. Capitalism does work, but it certainly doesn’t work magically. Most theories of capitalism include the understanding that some inflation is natural and that risk is inherent in investing. Some of them at least include the assumption that recessions happen from time to time.

    Believing that the economy would only rise and never fall was a huge mistake made by private citizens and by our politicians. Believing that there is a free lunch is simply ignorant and immature.

  2. #2 by Scott Erb on September 2, 2010 - 01:16

    Market capitalism seems threatened most by corruption in government (which may include legal influence via massive lobbying and campaign contributions), lack of effective rule of law, an ethical commitment to a proper market rather than a desire to circumvent the market or defraud, and the tendency for bad short term decision making by humans. The latter does get corrected by the market, but often with much pain and difficulty, which itself risks political disarray (which can harm rule of law, etc.)

    The current crisis is less a failure of market capitalism per se, then a result of clever efforts to avoid pain in the short term. Perhaps the most dangerous tendency is that a lot of big corporations see their own profit as more important than an ethical commitment to market economics. This was evidenced by the idea that the only commitment of the management of a corporation was to the shareholder, not society at large, not to the proper functioning of market capitalism. That led to a complete breakdown in ethics. A new tendency, called “karma capitalism” may be a step in the right direction: http://www.businessweek.com/magazine/content/06_44/b4007091.htm

  3. #3 by mike lovell on September 2, 2010 - 14:36

    So I see during the late 90s our debt was going up, contrary to all those publicly made statements of how President Clinton was making our debts into surpluses?

    Can you clue me in on how that all worked out one way, while the charts seemed to show another.

    • #4 by Scott Erb on September 2, 2010 - 14:51

      Because he never touched the debt, except maybe briefly in early 2000. What Clinton did (with the Congress) is cut budget deficits, and had a short budget surplus. So it’s like you’re spending more each month than you take in, and your credit card bills are increasing. You manage to put together a budget that has you pay minimum payments on the cards and balance your budget. The debt is still there, and will only be paid back slowly (as is debt on a house or car you might own). You can see that in the chart in the little “dip” in 1999 and 2000 — Clinton’s Presidency never really made a dent in the debt, and the bubble economy contributed to rising private debt. In other words, it wasn’t as big a deal as they made it out to be. If we had built on it, it could have been a first step, but it lasted only about a year.

  4. #5 by Jay Burns on September 3, 2010 - 04:05

    Great post Scott.

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