Restating the Obvious

Disaggregation

Well, we've had a little fun with space aliens and criminal masterminds,but now I want to get a little bit serious , first on my favorite business topic of disaggregating the aggregates; and then on a question whose answer is not obvious. In fact, the question itself is so unobvious that I've never heard it asked.

First, what kind of recession are we in? About a week ago in the real paper I reported a talk by Bankoh chief  economist Paul Brewbaker who used national GDP figures to show that there is no recession, although people feel like there is and act like there is. He called the outlook "the recession-y thing."

We're certainly in a recessionary environmentin Maui County, even if it hasn't lasted the required six months yet  to be certified as a "recession." nevertheless, an economy is like Wile E. Coyote: When you run off a cliff, you
don't have to hit bottom to know it. You look down, turn to the audience and wave bye-bye.

I've already written about this. Unless oil comes down, airlines aren't going to get healthy -- if they ever are -- and neither will we.

That's why we have to disaggregate the aggregates. The coming construction boom on Oahu, to be fueled by huge  outlays for military housing,isn't going to do Maui businesses much good (except outfits like Dorvin D. Leis Inc.  who are based here but have contracts around the state). In fact, a year ago the worry was that construction  workers would be drained out of Maui so that it would soon be difficult to find workers on Maui. Or, strictly speaking, more difficult. The guy who's fixing my roof flies in helpers from Honolulu.

You can find Maui guys now.

What about the national economy, what about that 3.3% growth in the GDP in the second quarter? Historically, 3% has been the long-term growth average of even vigorous economies. Anything much over that is boomtime, to be
corrected by busts every six to 20 years, or, since the New Deal, mere recessions.

First, is the economy expanding or isn't it? In the past eight quarters there have been two quarters of no growth  and six of growth varying up to as much as 4%. Meanwhile, prices have been climbing steadily -- about 5% and 6% a year in Hawaii even before the spurt this year pushed by petroleum. (The official market basket of
commodities that forms the Consumer Price Index is not surveyed on Maui at all, and only rarely on Oahu. But i was in Foodland yesterday, and the price of Haleakala Dairies milk was $11.18 a gallon. You can drink gas cheaper.)

This looks pretty much like stagflation to me. Not as stagnant nor as inflationary as in the late '70s, when the term was coined to reflect the economic outcome of rapidly advancing oil prices and wild government deficits. But not so good.

Hmmm. Where have we seen that again?

Oh, yeah. The last five or six years.

So, is it a recession or just a recession-y psychology?

It's certainly a recession in huge swathes of the economy, incuding auto manufacturing, building materials, construction, newspapers, airlines, banking. There are local general recessions wherever there is a concentration  of any of those things, like here, where retailing and restaurants are hurting.

The econoy is expanding if you happen to be in or near the awl bidness. I was in Houston in May, and things looked  pretty good. The big ICE rain in Laurel, Miss., at the end of August was at a plant that made electrical transformers. The company, Howell, is advertising continuously for help, even though southern Mississippi has a
 higher than average unemployment rate of 6-plus%. Presumably, because of Mississippi's legacy of low school completion, a lot of those people cannot hold industrial jobs. Or maybe Howell Industries was just playing illegal immigrants against nativer workers in order to break its unions. That's been known to happen in the South.

Anyhow, Howell had 600 illegal immigrant workers on its payroll. was working them overtime and looking for more.

You have to disaggregate the aggregates.

Back to the second quarter GDP. The growth was described, blandly enough, as due to exports of airplanes and construction machinery. I didn't see anybody mention the huge price inflation of petroleum.

Sure, we import most of our oil, and export dollars to get it, but we also produce 42% of our own. The people wise enough to own American oil and gas fields -- who repredent many billions of dollars -- were taking in a lot more money in the second quarter, but they weren't producing any more oil.

The monetary numbers went up, but the actual economic activity didn't.

Similarly with the $160 billion stimulus package. This was sort of the epitome of Reaganomics: It doesn't matter what the economic activity is, it will trickle down and everybody will get better. It didn't work in the '80s and it isn't working now.

The economy that got stimulated was not our but China's. If you bought a TV, the retailer may have made a dozen  bucks, and the shipping line -- as likely as not, South Korean -- made a ducat or two; but the majority of those dollars ended up in China, or maybe Malaysia.

They were imaginary dollars anyway. The government didn't have $160B in its piggybank to break out for a rainy  day, remember. It's running a deficit that isn't all that far from $160B a quarter even without cranking up the printing presses.

Time marches on. The thinking is Reaganomics, the practice is Mugabenomics.

In the next post, I will ask the question, so what?