Wednesday, May 8, 2019

Bye Bye Misery

This post is a paean to progress. The average person living in the U.S. has never had it so good, by any number of measures.

Chart #1

The Misery Index was invented decades ago by Arthur Okum, and it originally consisted of the CPI inflation rate plus the unemployment rate. A low reading means that inflation is low and unemployment is low, and that brings a measure of stability to the life of the average working person. I've made a minor modification to that in Chart #1, substituting the rate of inflation according to the Core Personal Consumption Deflator (which also happens to be the Fed's preferred measure of inflation. But no matter how you calculate it today, the Misery index as low as it has ever been in my lifetime. Both inflation and unemployment are very low, and that is great news for the average person.

Chart #2

Chart #2 is the result of dividing first-time claims for unemployment by the total number of people working. This is akin to the probability that the average worker will find him or herself unemployed in a given month. Currently that probability is less than 0.2%. It's never been so low, by a long shot.

Chart #3

Chart #3 is a picture of the average worker's nirvana: when there are more job openings than there are people looking for work. This, plus the fact that unemployment is very low makes the current environment the best time in many generations to be looking for a job.

Chart #4

When I was 10 years old, over one-quarter of the average person's annual spending went for food and energy, as shown in Chart #4. Today, thanks to drilling advances, modern agriculture and greatly expanded global trade, that figure has come down to just over 10%. Wow.

Chart #5

Despite our materialistic lifestyles and ever-rising consumer debt, the average household's financial burdens today are no higher than they were 40 years ago, as shown in Chart #5.

Chart #6

Chart #6 illustrates the relative behavior of the prices of services, non-durable and durable goods since 1995, which not coincidentally happens to be the year that China started exporting durable goods to the world in earnest. If you consider that services prices are basically driven by wage and salary income, then one hour's worth of labor today buys about three times more durable goods than it did in 1995 (1.84/0.62). I don't know of any measure of material progress in recent years that is more impressive than this. Is there anyone who can't afford a flat-screen TV or a cellphone these days?

Chart #7

But what about the supposedly huge increase in income and wealth disparity? Well, the rich may be getting richer than the poor are getting richer, but they are picking up the lion's share of the $3.3 trillion in taxes collected by our federal government in the past 12 months, as Chart #7 shows. According to the Tax Policy Center (a joint venture of the left-leaning Urban Institute and the Brookings Institution) the top 40% of income earners pay 86% of all federal taxes, while the bottom 40% pay only 14%. If you want to narrow that down to the top 20% and the bottom 20%, the tax disparity is even more dramatic: the rich pay over two-thirds of all federal taxes, while the poor pay less than 1%. Politicians have just about run out of room to increase rich people's "fair share" of the total tax burden, which I suppose should be added to the list of things to be grateful for these days.

UPDATE: For more on how things have improved dramatically over the years, I recommend the Cato-sponsored Human Progress site.


steve said...

Total agreement Scott but wait-we're murderers! The left are THE most pessimistic miserable sob's. Get the economy humming-well global warming is killing people. Rotten economy? It's those meany pants right wing tax cutters! They're just NEVER happy. What a miserable way to live.

What the millennials really don't understand is how much life in general is easier now than it was say 30 years ago. The really sad part? They very well may get the keys in 2020. If a socialist gets in and sells their BS "green" policy, we will see misery. But at least the wealthy will be less wealthy!

The Cliff Claven of Finance said...

I offer an alternative batch of charts that are a mix of optimistic, pessimistic and just interesting, all located at:

After almost ten years of economic growth, and over ten years of a rising stock market, one should be more alert for bad news, rather than looking only for good news (confirmation bias), and assuming you are a brilliant investor (which happens to many investors near market tops).

I have no idea what's wrong with leftists. One that I know is wealthy, drives a BMW, lives in a wealthy suburb, and always thinks the country is going to he-ll in a handbasket, whatever a handbasket is. I've been avoiding the person for years because they depress me -- and won't debate anything (typical leftist) -- I can't imagine the current level pessimism, now that Trump is president. They were bad news before Trump Derangement Syndrome and the Russian Collusion Delusion.

I hope Trump doesn't mess up his trade war. His alleged negotiation skills do not exist, in my opinion. He needed to organize a coalition of nations to oppose China trade practices. But he went in alone. I have not yet heard China even admit to an intellectual property theft problem -- don't you have to admit to a problem before you can fix it.

Someone here may know more about this than me -- my observations of the ramp up of a high tech Chinese military in the past decade strongly suggests they have been stealing US military contractor intellectual property -- too much progress in a decade to be a do-it-yourself job, IMHO.

The S&P 500 closed today at 2,879, only 6 points (2%) higher than 2,.873 on January 26, 2018 -- investors must be worried about something over those past 15+ months.

Al said...

Please also see my blog


Lots of traffic so far according to Google analytics

Many graphs and meme's available and generally negative sentiment.

Roy said...

The world as a whole has been getting better and better.

Max Roser has an absolutely fantastic site for those who are interested in the data:

Going over the numbers it is truly amazing how things have been improving in the past 50 years.

Regarding Char 6. it's really disappointing that you have chosen to post it again as it is.
I'm not even talking on how it is deliberately designed to make it match to the conclusion...

This graph is at best meaningless.

As a percentage of income, how much is spent yearly on durable goods? How much is spent on services? How much is spent on non-durable goods?

"Is there anyone who can't afford a flat-screen TV or a cellphone these days?"

Fantastic, you can get a flat screen TV for 100 bucks. Our lives are complete!

How about this question, considering the rise of 84% in services and 47% in non-durable goods:

"Is there anyone who can't afford health care or legal services or food or education?"

Why not update the graph? Maybe the conclusion would remain the same. Weigh it.

randy said...

To be the devils advocate.

Health care isn't mentioned. In a way, that is also good news - cancer isn't necessarily untreatable; heart disease is well managed with medication; etc. But its only in recent decades that bad luck requiring hospitalization can bankrupt middle class, even those with insurance. And that insurance premium now takes far more of the median income. Far offsetting that big screen you can get for $500.

The way I see it, conservatives are letting liberals get away with telling their story much better. In short, the liberals tell you that any real or perceived shortcoming in your life is not your fault, it's not fair, and liberals will rectify that for you. Like Liz Warrens commencement speech to the black college with the theme "the system is rigged against you". This is beyond awful. To me it's just like the bad parents we see (or maybe even been) that - when their kid doesn't get to start in soccer, or doesn't get an A in class - blames the coach or teacher and tells the kid it's not fair. When they should be telling the kid that "fair" is a useless word and they just need to make the effort and deal with the results.

Conservatives really don't tell a story. In the best case, it's this post that convincingly shows how much better off they are. More often, it's just disdain or even ugliness. All we care about is tax cuts. Dang near spiteful with pollution and land conservation issues. Demonizing immigrants. In the pocket of NRA. No proposed solutions for health care costs. As my wife says, conservatives are only about the economy. Now, that in fact is the best thing to focus on! 3% growth and fantastic employment metrics solves a crap load more problems than 2% growth with a bunch of compassionate social programs. But the common man just cannot understand that. That's not a story for the common man.

I think conservatives would be much better off if we tried to offer more that tells the common man we are committed to fixing the inequities of capitalism where we find it.
.. change banking regulation to reduce risk on the backs of taxpayers. The banks really are bloodsucking, rent seeking time bombs.
.. immigration reform - it's not really that hard to see the right thing to do
.. rewrite patent laws that unreasonably keep drug prices high for too long
.. offer some alternatives for health care - probably guaranteed catastrophic insurance.
.. reduce regulation and certification requirements for common trades that make it harder for lower education people to find a trade.
.. reign in zoning laws that drive up housing and build a virtual wall around the communities that have good schools.

Would it really be that bad or hard for conservatives to show some compassion where it's warranted, for initiates like those? Might that not tell a better story?

Of course Trump is not the leader for a positive conservative program. And the candidates in the last primary were not so inspiring either. Milk toast mostly. I'm liking Nikki Haley for the future.

Scott Grannis said...

Cliff, re "investors must be worried about something". Yes, they are worried about Trump and China and trade wars. Tariff wars are not good for economies. Imagine the surge in equity prices should the US and China come to a zero-tariff agreement.

Scott Grannis said...

Roy, re Chart #6: I didn't design that chart to reach any conclusion. I picked the starting point (1995) because that marked the first time in history that durable goods prices declined relative to other prices in a sustained fashion. The chart speaks for itself with one clear message: service prices are up relative to all other prices, and that implies that labor has become more valuable relative to things. And that's a good thing, isn't it? A unit of labor buys more of just about everything, EXCEPT other services. And some services (e.g., healthcare, higher education) have gotten more and more expensive over time.

We might then ask why healthcare and education have become so expensive. Well, for one they both consist primarily of the services of labor (doctors, nurses, labs). But they also share one common characteristic: both are heavily "managed" by government (e.g., medicare, student loans). Healthcare and education are in fact dominated by government "management." And they are both very expensive. Why? Because there is no free market in either. There are no price signals. Competition is almost nonexistent.

randy said...


Add to that the 2008 mortgage crisis. Policy makers strongly pushed banks to make mortgages for people that couldn't afford them, pushing up home prices, in the name of "fair access" for minority groups. Dirty banks were happy to oblige passing the loans into securities to offload their own risk. How isn't the parallel with student loans obvious. I guess it is.

steve said...

Randy, you make a hell of a lot of sense. I appreciate your comments.

randy said...

I know I sound like a RINO, maybe so. I thought Benjamin would appreciate the zoning bullet point. He might be on vacation.

Benjamin Cole said...

Randy--- love the zoning comment. Not a PC topic, but property zoning is the largest structural impediment in America today. Sheesh, there are scholars at the Mercatus Center, part of George Mason, that say property zoning allows all household income gains and more to be sucked into property owner pockets---economic rent, as validated by socialist government property zoning.

Even the Libertarians find that topic too hot to handle!

Side note to anyone: the consumer and housing markets are beginning to look a little bit squishy.

I hope the Fed is keeping an eye open to a rate cut and possibly QE again. I would prefer a preemptive strike rather than letting a recession start and then fighting it.

Kman said...

Thanks for the info Scott. I read Hans Roslings book factfullness a couple months ago and it echoed similar sentiments, especially with regards to the developing world.

My thoughts;
1. healthcare should be more prominent in the stats you pointed out.
2. The rest of the world is upncoming, which means there will be disruptions for the current
order of things. China has ambitions, soon it will be India. Its great all the young minds
coming along and hopefully contributing something to the global knowledge base. Its both a
benefit and a threat to the US, which might not benefit from favourable immigration
trends in the future.
3. Debt to GDP still too high.

Unknown said...

I spent 10 years in thailand. No public pension or government healthcare program... the cost of hospital still can break household budget... i fully agree with you scott... but the price of education and healthcare are probably driven high by another cause than weak competition and stupid public left side people

steve said...

Looks like our illustrious POTUS is doing his best to snatch defeat from the jaws of victory. If China plays hardball, this could get nasty in a hurry.

Benjamin Cole said...

Note to anyone. I guess Ray Dalio is well-known, and runs the world's largest hedge fund.

It looks like he is calling for fiscal and monetary stimulus going forward...maybe helicopter drops.

No dought this is heresy to many. I dunno.

If helicopter drops can be fashioned as tax cuts for people who work, and not social welfare, I am inclined to listen, or tax cuts on business and productive enterprises.

I think monetary policy has lost is traction. Inflation is dead too. Sometimes, one has to change with the times.

randy said...

It's scary to see smart people like Dalio say something like this "Modern Monetary Theory is one of those infinite number of configurations that is in my opinion inevitable". Seems like financial alchemy. Even Paul Krugman had to tsk tsk the notion. I'm way too unstudied to really know, but a basic law that you can't make something from nothing would seem to apply.

I wish I understood more clearly the federal budget and debt. The continued budget deficit in this strong economy seems reason to be scared about the next recession.

Where does the money go.

We can blame growing transfer payments. But maybe that's due mostly to growing boomer retiring and health care costs. Health care costs show some signs of stabilizing, and boomers, well, we will start dying off.

We can blame foreign military conflict. Hard to see that going away.

Lower tax rates? It's pretty amazing that tax revenue as percent of GDP is so stable over long-term. Maybe the Laffer curve is the truth within reason.

Maybe we can ride it out until Millenials and GenXRs far surpass living Boomers and can better handle transfer payments. Since it's too complicated for me, I'm stuck with the feeling that living beyond our means even in the best of times is scary.

Scott Grannis said...

Kman, re "healthcare should be more prominent in the stats you pointed out"

Good point. But after checking, I find that the PCE deflator for healthcare spending is substantially similar to that of the overall PCE services deflator. Since 1995, in fact, healthcare inflation (by this measure) has actually been about 6% less than services in general, and almost all of that underperformance has occurred since 2008. Obamacare looks like the likely culprit, since it mandated lower payments for a lot of medical services. Still, a 6% difference over 10 years is not very significant.

Kevin said...

These are pretty misleading graphs.

While a flat screen TV is more affordable, what % of median income does that represent? 0.5%? Clearly cost savings there don't fall hardly at all to the bottom line. Your chart doesn't show at all the relative share of income for durable vs non-durable vs services. If durable has become a much smaller share of income, again the benefit is limited. And if you look at total inflation vs income, earnings have been FLAT. So overall costs are a wash (see Ray Dalio's paper).

Finally, your complaint about taxes lacks historical context. The rich have ALWAYS paid the majority of taxes. The question is, has that share gone down? With numerous ways now to avoid taxes, I wouldn't be surprised if the well off now pay LESS taxes as a share of gov't revenues.

But we don't have the info in your post to know. Just a complaint that it's too much. Which has forever been true.

SergioT said...

Scott, I love your analysis but I think the last chart - and its interpretation - is a bit misleading. It would be much more fair to compare the amount of taxes paid by each quintile in relationship to their income or net worth.. or a mix of the two.

SergioT said...

PS: other than that I agree with your general point that standards of living have been improving significantly for the vast majority of the population.

Ron Gruner said...

Sergio, here's the latest income tax data for 2016 tabulated from...

Quintile Gross Income Taxes Paid After Tax Income
1 213.1 (2.1%) 1.4 (0.1%) 211.7 (2.4%)
2 595.4 (5.8%) 15.7 (1.1%) 579.7 (6.6%)
3 1099.2 (10.8%) 60.5 (4.2%) 1038.9 (11.8%)
4 2005.6 (19.6%) 178.4 (12.3%) 1827.2 (20.8%)
5 6312.3 (61.7%) 1190.0 (82.3%) 5122.3 (58.3%)

Scott's 2017 data shows the top quintile paying 68% of total taxes while they paid 82 percent in 2016. Something's not quite right.

Scott Grannis said...

Ron, re “something’s not right.” One important detail might explain it: the data you cite is for total income taxes, whereas my chart is for total federal taxes (income plus social security plus corporate plus capital gains, etc.)

Scott Grannis said...

Kevin re historical context. See this post of mine from a few years ago re tax and income shares. The rich have been paying more and more of total taxes over the years:

Benjamin Cole said...


I would not dismiss MMT to easily. It has been horribly packaged as paper-money financing of a boondoggle Green New Deal run by socialists. Yikes! (Although I wish my conservative friends would take similar umbrage at $7 trillion spent on counterproductive wars in Afghanistan an Iraq, all financed by printing money).

A smarter version of MMT is money-financed tax cuts. I suggest the Fed buy Treasuries and place them into the Social Security fund, ergo financing a FICA tax holiday (on employer contributions as well).

I would happily eliminate whole federal departments, such as HUD, Labor, Education, USDA, VA, and cut DoD in half. But we still might need helicopter drops.

Something has changed in the last 20 years. We have chronic heavy global supplies of capital driving down cap rates to the nub in real estate. "Too much money chasing too few deals" is the mantra in every industry. Not enough demand.

Monetary stimulus has lost traction. Rates at zero, and QE doesn't do much. Some nations are going to negative interest rates on bank deposits, to strong-arm banks into landing, but that strikes me as a bad idea.

The judicious use of helicopter drops strikes me as a reasonable option---but only in the form of tax cuts on productive people.

I am also puzzling why it is that Japan, US and Europe central banks have been able to buy back debt, thus lightening the load on taxpayers, without inflationary result. Orthodox macroeconomic theory is a wonderful concept...but seems to be misfiring.

It is obvious that central banks can build huge balance sheets without much result. That is a historical fact now. I suppose we can repeat, "Just you wait, just you wait, there will be financial catastrophe someday." Well, okay, that is one approach to policy making.

Kevin said...


Well said. And you're absolute right, MMT has been EQUATED with central bank-financed socialist deficit spending, but that's not at all what it means.

James Montier's piece was really helpful, as well as Dalio's, in helping me understand that it's a different way to look at the interaction of monetary and fiscal policy (and how the public sector is the only part of the economy that creates credit "from thin air"). MMT proposes that inflation is solely caused by supply constraints (when the economy operates above potential economic output). And MMT says when that happens you have to CONTRACT fiscal policy (and thereby drain money from the economy). It's essentially all about putting fiscal policy in the driver's seat, especially given the high leverage in today's global economy.

After learning what it really is, I've found it a useful lens to look at the future paths of policy.

But that requires tuning out the simplistic misstatement that MMT = socialist overspending = BAD

Ben - according to MMT, central banks can buy all the assets they want, but if growth isn't hitting up against capacity constraints, we won't get any inflation. And Dalio argues that asset purchases will only get us so far - once they're bid up, there's diminishing returns, and also the $$ goes to asset owners, who tend to have a lower propensity to spend.

And remember, we're also at the 70 odd year peak of the super debt cycle. High debt (much of which is just spending borrowed from the future) equals low growth.

It'll be interesting to see how this all unfolds...

Benjamin Cole said...

Randy-- I am hardly the global scholar, but I am still puzzling over MMT and helicopter drops. I think I prefer a limited amount of helicopter drops to heavy federal borrowing.

By the way, Ray Dalio also forecast long-term Treasury Bonds hit 0% interest at some point in the future. If true, then holding T-bonds is not such a bad investment.

Bryon said...

I have a Masters in Chemistry and 21 years experience in the field, but now I work as a truck driver because I can't get any other job. Something is wrong. I think China is taking all the jobs it can and wants America to become nothing more than a consumer.

Ian said...

One of the best explainers of MMT that I've come across is here:

The author argues that, given the amount of slack in the economy, we could ramp up deficit spending to 8.8% of GDP without causing inflation. Doing so would cause GDP growth to increase substantially, possibly to as high as 6%.

This analysis brings home that deficit hawks take a basically mistaken approach to deficit spending. They think that deficits can be evaluated on their own, so that a 7% deficit would be bad and a 1% deficit would be OK. However, you can understand deficit spending only in relation to the supply of real resources. Deficit spending is too high when it creates such strong demand that supply can't keep up. That's when you get currency devaluation, as you have in places like Venezuela or Zimbabwe. But a nation with as much productive potential as the USA can handle substantial deficit spending.

Ian said...


You believe that the expense of healthcare is caused by excessive government management. However, this theory is contradicted by the fact that healthcare is both more heavily managed by government and cheaper in the rest of the developed world. The tired conservative cliche that big government is responsible for all the world's problems causes you to miss the mark.

Mark Gerber said...

Nice post on how the USA economic pie has grown and everyone's slice is bigger. Absent, though, is analysis on changes in slicing the pie. Isn't the personal share, real or perceived, at the core of the populous vote?

Ron Gruner said...

Mark, I've just posted three charts at...

which show gross income, income taxes paid and after-tax income by quintile from 1920 through 2016.

Mark Gerber said...

Thank Ron. Using 1960 as the base year, it looks like the net (income after tax) share of the USA economic pie has shrunk for the bottom 80% and grown significantly for the top 20%.

Ron Gruner said...

Mark, that's correct. Since the end of WW II, the largest share of after-tax income held by the bottom 80 percent was in 1953 at 57.4 percent. It declined after that to a minimum of 40.1 percent in 2007. In 2016 it was 41.7 percent.

In 2016 the top 20 percent had 61.7 percent of the gross income, paid 82.3 percent of all income taxes, and had 58.3 percent of the after-tax income.

John said...

Back around 2009, Bernanke and Geitner did much to repair the economy. The trend they established continues - except for the recent rise in the budget deficit.

SantaMedical said...

SantaMedical is the Manufacturer and Bestseller in the United States for Portable healthcare Products on All marketplace.