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January 10, 2012

The Daily DOOM


Employment trends since 1955. Our population keeps increasing, but the labor-force participation ratio is shrinking. In part this reflects the reality that more and more Boomers are leaving the workforce for retirement, and fewer workers are replacing them. But in part it also reflects the large and growing number of able-bodied people who simply stop looking for work for whatever reason. The BLS does not consider these people “unemployed” for statistical purposes, and yet they remain as a drag on the economy.

Public-sector pension debt is an animal that will eat everything if not constrained. The most senior members of the LOTB -- Illinois, California, New Jersey, New York -- will feel the pain soonest, but nearly all states face some tough choices in the years ahead.

His Majesty the King does enjoy his amusements...as long as the filthy peasants are kept well away.

Also, remember: His Majesty does not like to be questioned or held to account by the peasants. The penalties for lese majesté are severe.

Nevertheless, never let it be said that His Majesty does not love his people. There are signs that Obama may be pushing a $1 trillion re-finance plan for mortgage-holders who are underwater on their loans. Moral hazard? His Majesty disdains the term -- King Barack the Just shall determine what is best and right for his long-suffering people.

California is so boned that lawmakers are having to resort to petty thievery to make ends meet. (And let’s not forget good old-fashioned check fraud over in Georgia.)

Fitch warns Italy that a BAM! may be coming.

Germany is the engine of Europe’s industry, and that engine is beginning to lag.

“Booming” is not the word I’d use to describe the state of US carmakers, even Ford -- much less the ward of government GM or Fiat subsidiary Chrysler. Sales picked up some in the last year, but GM and Chrysler especially have a long way to go before they leave the country of the boned.

Is there an easy way out of the Euro? Answer: no. The problem is that most Eurozone debt is denominated in Euros, and will stay that way even if the countries redenominate into their own currencies. So even if (say) the lira pegs the Euro at 1-to-1, the lira pretty clearly can’t stay that way: it must devalue (which is the whole point of going back to the national currency, after all). However, the debt will not devalue along with the currency. (As an interesting aside, see how Italy’s dysfunctional economy and work rules are harming the historic Pompeii site.)

Scots whisky -- the gift that keeps on giving. Drink a dram of Mackinlay’s Rare Old Highland Malt Whisky in remembrance.

China’s economic “miracle” has mainly rested on two pillars: one, the willingness of Chinese workers to slave in factories for very little pay; and two, an insatiable appetite in foreign lands for cheap Chinese-made goods. The Chinese in the 1990’s and early 2000’s essentially turned their entire country into a huge factory geared toward export manufacturing. Now that their export markets are slowing down or drying up entirely, the Chinese are finding themselves faced with a too-small domestic market and a rapidly-aging population -- two factors that do not bode well for future growth.

Teh Krugman and the Ivy Fallacy.

Allow me to posit that attendance at our most selective, Tier 1 universities is not the best indicator of the general accessibility of the good life in these United States. But if you are the sort of person who finds it impossible to believe that one might achieve a satisfying and productive life without having attended Princeton—or, angels and ministers of grace defend us, without having secured a college degree at all!—then Tier 1 admissions stats are the first data point that leaps to mind, apparently.

California: the golden land of opportunity and adventure! Where you can retire with a pension larger than your working salary! (Well, if you’re on the public payroll, anyway.)

Retiring to that picturesque little town in an out-of-the-way place might seem like a dream come true, but sometimes reality plays out differently. The consequences of bad decisions can haunt you for a long time afterward, and nowhere more so than in choosing where you’re going to spend your sunset years. Think carefully about the kind of life you want to lead in retirement: not just how much money you have or the scenery outside the window, but also about how close family members are, how close medical and support facilities are, the cost of living, and so on.

I will note that sob-stories like this one are the slow-news-day meat and potatoes of the newsman’s diet, however. If you need to fill column inches, you can always find some sad sacks who have fallen on hard times. In an up economy or down, boom or bust, there will always be the population of the unlucky, improvident, and just downright stupid.

Also, am I wrong to feel a bit of Schadenfreude at this bit?

The couple used to make good money negotiating union contracts for public employees, but now Conway can hardly keep up. She's $30,000 behind on property taxes and in danger of losing the house.

Pretty soon school districts will exist only to service pension plans. The kids will long since have been sent away to toil in the salt mines to keep the geezers in Mentholatum rub and Geritol.

It’s official: private-sector pension plans continue their march to oblivion. The defined-benefit pension is already a rare bird in the private sector, and I expect it to be entirely extinct within a decade or so.

A lot of people seemed to be hoping that the Euro crisis would just somehow evaporate over the holidays, and that we could come back in the New Year with the catastrophe behind us somehow. Unfortunately, wishful thinking has failed us yet again and the problem stubbornly persists. When lying, pretending, hiding, dissembling, and evasion have all failed, what other avenues can a European politician realistically take?

I’ve got a bet on with a friend of mine: I’m betting that gold hits $2000/oz this year. If I win, he has to give me a 1oz Gold Eagle coin. If he wins (if gold does not reach the $2000 mark any time before midnight on December 31, 2012), I owe him $2000 in cash.

Can you live entirely without money? That is, can a person survive in modern society purely on the barter system? This story illustrates an example of someone who has done this, but I classify this as a rare exception that proves the rule -- it's possible for a very few people to survive purely by barter, but it wouldn't scale at all. The whole reason money was invented in the first place was to smooth out the inefficiencies and lack of scale in barter transactions. (Thanks to Ben for the link.)

Economic illiteracy as mental substitution. One of the best adaptive qualities that human beings have is the ability to quickly synthesize and integrate new data into our worldviews. Unfortunately, this also leads us to make bad snap judgments that we are nevertheless reluctant to let go of, even in the face of bad outcomes. (This also shows why, when you ask people a specific economic question, they tend to formulate a different heuristic question in their own heads and answer that one instead. To a certain extent it's just human nature to do so.)

UPDATE 1: The Euro is already defunct. (Thanks to CBD in the comments.)

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posted by Monty at 08:43 AM

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