Facts, Fictions and Forecasts
"What intrigues us as a problem, and what will satisfy us as a solution, will depend upon the line we draw between what is already clear and what needs to be clarified," Nelson Goodman.
State Space Models
Monday, November 18, 2024
Hardship and the 2024 US Presidential Election
Thursday, November 14, 2024
US Taxes
The assumption is that these cyclical tax cuts help the wealthy and fuel the deficit. I will look at the effects of tax cuts in a future post, but for the present I want to emphasize that tax cuts are both a political football and a countercyclical approach to balancing the economy. Tax cuts could probably be a more effective automatic stabilizer if politics was more rational.
Wednesday, November 13, 2024
Alternate Futures for the US
The graphic above (click to enlarge) shows four alternative futures for US1, an index of overall growth in the US SocioEconomic System (see the measurement matrix below). It is based on computer simulations of alternative estimated state space models. I would argue that the graphic says a lot about why US voters decided the way they did in the 2024 Presidential Election and what we can expect from the new, Right-Wing Republican Administration after 2025.
First, why did the MAGA movement embrace an extension of the American First isolationist movement? The Foreign Policy of the Obama Administration (2009-2017) was directed toward the World System and was not Isolationist. The World System input model (W) in the graphic above put the US on a slower overall growth path (dotted green line). I would argue that voters were well aware that growth of the US Economy and the US standard of living was slowing (see Economist Kathryn Ann Edward's comments here). The realization led to a Right-Wing backlash (the same thing that happened in Germany during the Inter-War (WWI-WWII) Years, see Arno Mayer's The Persistence of the Old Regime).
Second, the President-elect's policy pronouncements and transition plans suggest abandoning the World System and doing everything possible to stimulate unlimited endogenous economic growth in the US: eliminating regulation, ignoring white-collar crime, closing borders to immigrants, abandoning environmental regulation (allowing businesses to exploit free environmental resources), eliminating labor regulation (a restraint on profits), dismantling the Welfare State, slashing business taxes (another restraint on profits), eliminating funding for and control over education (a stimulus to wage growth and a limit on profits), etc.
The red and the blue dashed lines in the graphic above show possible time paths for the US Economy unleashed. The models predict uncontrolled, unending exponential growth for the US System. They are, I would argue, a business man's fantasy. Nothing can grow forever and eventually limits will be reached (my models suggest sometime after 2050). Most of us living at the present moment, me included, will be dead by then. It will be someone else's problem.
There is another possible time path for the US SocioEconomic System: the Random Walk (RW, the solid line in the graphic above). No one can know the future. Attempts to dismantle failing US Institutions may or may not happen as imagined. The new Administration's cabinet picks, so far, are not reassuring. Essentially, in a Random Walk, today is like yesterday except for random error, actions by people who are making it up as they go along.
I am always surprised that commentators can seem so confident about what happened in the 2024 Presidential election and what will happen as a result of it. I'm not. My advice for the future is to take defensive positions and not follow Economic Bubbles that might develop in response to crippling of US regulatory institutions.
We know our current systems are failing and need to be rebuilt. In future posts I will look more carefully at all of these systems.
US Measurement Matrix
The graphic at the beginning of this post applies the weights from row [1,] of the state space measurement matrix to 36 indicators of US development from 1950-2010. After 2010, the results are simulated from four state space models: RW (Random Walk), W (World System input), US (components from rows [2,] and [3,] in the measurement matrix), and BAU (a Business as Usual model with no inputs).
Measurement Matrix
L.US.E. L.US.U. GDP.US. GDP.C. GDP.I. GDP.X.
[1,] 0.1955 0.138 0.1978 0.1972 0.1961 -0.1402
[2,] 0.0669 0.200 -0.0462 -0.0554 -0.0355 0.0751
[3,] -0.0312 0.239 0.0284 0.0314 -0.0272 0.2229
GDP.G. P.US.TBILL. P.CPAPER. P.FED.FUNDS. P.CPI.
[1,] 0.1976 0.00429 -0.01554 0.0127 0.19773
[2,] -0.0377 0.40583 0.40460 0.3998 0.00996
[3,] 0.0541 0.07630 -0.00165 0.0986 0.02128
P.GDP. P.SP500. V.NYSE. P.S.P.DPR. P.S.P.EPR.
[1,] 0.1967 0.1868 0.166 -0.146 -0.112
[2,] 0.0337 -0.1076 -0.131 0.144 0.128
[3,] 0.0240 -0.0277 0.165 0.321 0.384
Q.H.Starts. K.US. M1 M2 P.WPI. Q.A.
[1,] -0.0202 0.1974 0.1953 0.1979 0.1932 0.1918
[2,] 0.0392 -0.0418 -0.0145 -0.0325 0.0612 0.0766
[3,] -0.4666 0.0446 -0.0318 0.0472 0.1051 -0.0973
Q.I. O.B. P.FUELS. P.W.AG. P.W.MFG. Q.OIL.
[1,] 0.1967 -0.173 0.1834 0.1983 0.1990 -0.113
[2,] 0.0374 0.186 0.0269 0.0131 0.0125 0.312
[3,] -0.0683 0.110 0.2538 0.0489 0.0232 -0.145
N.US. IMM.US. U.US. CAPU EF Globalization
[1,] 0.1951 0.1440 0.1967 -0.141 0.1867 0.0818
[2,] 0.0746 0.0546 0.0477 -0.153 0.1096 -0.2964
[3,] -0.0642 -0.1371 -0.0589 -0.164 0.0303 0.3905
CO2 Q.FOSSIL.
[1,] 0.180 0.129
[2,] 0.155 0.283
[3,] -0.110 -0.157
Fraction of Variance
[1] 0.698 0.854 0.900
Atlanta Fed Economy Now
Hurricane Forecasting
Climate Change
Tuesday, November 5, 2024
Is the US Presidential Election a Random Walk?
Data and Sources
Monday, November 4, 2024
Are Migrants Stealing Your Jobs?
In summary, while there can be local variations, the data does not support a general link between higher immigration and increases in either unemployment or crime.
Interestingly, AI does not agree with Political Intelligence here. For example, the Heritage Foundation, a Right-Wing Think Tank, argues that "...2/3 of Federal Arrests involve non-citizens". Of course, both ChatGPT and the Heritage Foundation have biases because they base their conclusions on very limited data and biased mental models. So, the assertions and arguments don't satisfy me.
In the causal diagram above (click to enlarge), I try to make some links that are missing from the literature which concentrates almost entirely on presenting numbers for Net Migration, Employment, Unemployment, Crime and Healthcare. My working hypothesis is that all these variables are being driven by Shocks and internal dynamics within the US Economy and the World-System. Causal links with "?" indicate that the direction of causation is unclear, at least to me.
First, let me summarize my results before getting into details. The models I will use are similar to the Atlanta Federal Reserve's Economy Now model but I've expanded the variables of interest to include Crime, Net Migration and Healthcare (the EconomyNow app, which you can download on your cell phone, covers GDP, Wages, Employment and Consumer Prices). It's the same model I have used in prior post (here and here). To summarize my findings:
- Crime Crime rates have been declining since 1974 with 1981 being the peak for violent crime rates. In the short run, crime rates are a random walk or driven by US Economic performance. In the long run, crime rates are driven by the World-System, particularly events in Latin America (this result should appeal to the Right-Wing). But, it is not driven by immigration.
- Government Healthcare Expenditure In the short-run, healthcare expenditure is also a random walk and driven by events in the World-System. It also is not driven by immigration.
- Unemployment In the short run, and the long run, unemployment is driven by events in the US Economy and not by immigration.
- Net Migration For net migration (more people entering than leaving the country), I don't get a very clear picture (this is probably why it is a perfect issue for wild political distortions). The best model is a Business-As-Usual (BAU) model, likely the result of US immigration restrictions. However, it does not support the assertion that the US has Open Borders.
Crime
The graphic above (click to enlarge) shows violent crime over time across administrations (left panel) and violent crime after a NETM shock. Crime rates have been declining since a high in the late 1970s, bottomed out during the Obama Administration, began to climb again during the Trump administration and leveled off during the Biden Administration. A shock to NETM (right panel) decreased crime rates but not by a lot (the y-axis of both graphs is measured in standard score units).The shocks to CRIME from World-System events are displayed in the graphic above. The two major shocks were the September 11 Attacks in 2001 during the Bush Administration and the COVID-19 shock during the Trump administration.Government Healthcare Expenditure
The graphic above (click to enlarge) shows Federal Government Healthcare expenditures across administrations (left panel) and shocks to Health Care expenditure from NETM in the right panel. You can clearly see that Obama Care (the Affordable Health Care Act of 2010) "bent the curve" on US Healthcare expenditures. It is interesting that the time path of GHEALHX is best described as being driven by World-System events, specifically the state of the economy in Latin America. To my knowledge, this link has never been demonstrated before and should be considered controversial. However, shocks from NETM, although increasing GHEALHX, only have minor effects. And, the COVID-19 shock during the Trump Administration can be clearly seen. It would be fair to conclude from the graph above that abolishing Obama Care (a plank of the Trump Administration and Project 2025) would "unbend" the GHEALTHX curve.Unemployment
Net Migration
Summary
Wednesday, October 30, 2024
US Inflation by Administration
We are now within a week of the 2024 Presidential Election. There seems to be a lot of confusion in the American electorate about the state of the Economy and the role (if any) that has been played by prior administrations. In a earlier post (here), I looked at GDP across eight Administrations starting in 1974 (I also explain how to read the graphic above). In this post, I will look at Inflation, specifically the Consumer Price Index (CPI).
Tuesday, October 29, 2024
US Economic Performance by Administration
We are about a week away from the US 2024 Presidential Election. Polling seems to show that likely voters are very concerned about the economy and hold each succeeding administration responsible for economic performance (see below).
The graphic above shows Gross Domestic Product (GDP) performance since 1975 by the various presidential administration. The black line is actual GDP, the dashed red line is the GDP Attractor Path and the dotted and dashed blue and green lines are the lower- and upper-98% prediction intervals, respectively. The model used for prediction is my version of the Atlanta Fed GDP Now model.
The model shows that for most of the period (except briefly in the Reagan administration) the economy performed better than might have been expected from the Attractor Path. The Clinton and Bush II administrations even briefly reached the upper-98% prediction interval. The Trump administration inherited a solid economy from the Obama administration but was clearly affected by the COVID Pandemic. The Biden administration, so far, has almost returned to the upper-98% prediction interval, meaning the economy has performed extraordinarily well.
The best prediction for the future is that the economy will return to the GDP Attractor Path which means that whichever party wins the White House, the administration will face downward pressures on economy growth.
Polling on Economic Performance
A recent CBS poll (here) shows that respondents rated the prior Trump Administration (Jan 2017 to Jan 2021) as better than the current Biden Administration on economic performance. The polling does not seem to reflect the actual data (see above) but the COVID Pandemic hit during the Trump administration and respondents seem to discount the resulting economic shocks.
Update
Current BEA estimates (here) show GDP increasing within the upper-98% prediction interval. The economy continues to perform quite well inspite of pessimistic polling data.