Wednesday, December 10, 2014

Real Annual National Income Growth

National income is the the sum of all income (wages, profits, rents, interest, and so on).

The following chart shows the 2-year moving average of real national income growth.

Click to enlarge.

Party like it's 1999! (With less than half the real annual national income growth, of course.)

I have stated in the past that it is getting harder and harder to make money off of money. This chart shows that it is getting harder to make money in general.

As a retiree who values caution, proof is not required that we stay in the trend channel. The channel definitely helps explain why I have been so willing to lock in long-term treasury real yields though.

For those who embrace extra risk in an effort to offset the long-term trend, consider what happened the last two times we were near the top of this channel. 1999 saw the dotcom bubble pop and 2005 saw the housing bubble pop. If we do stay in the channel, that doesn't mean we can't just slowly drift lower from here though (like we have been in recent years).

It is possible that we can break out of the channel to the upside. Anything is possible, but it is not something I would bet on. If 5+ years of  ZIRP can't break us free to the upside, then what can? It certainly won't be the Fed raising short-term interest rates in an attempt to cool this economy down. That's a bit like expecting a cocaine addict to perk up once the drugs stop coming in.

December 4, 2014
U.S. Birthrate Declines for Sixth Consecutive Year; Economy Could Be Factor

According to the report, the general fertility rate in the United States — the average number of babies women from 15 to 44 bear over their lifetime — dropped to a record low last year, to 1.86 babies, well below the 2.1 needed for a stable population.

1. Slower growth leads to fewer children.
2. Higher college costs lead to fewer children?
3. Fewer children leads to slower growth.
4. Repeat.

For a debt-based economy desperately counting on economic growth, this is not a virtuous cycle. The good news is that it hasn't hit the economy in a meaningful way yet. We don't expect those under age 6 to hold jobs and contribute much to GDP. If that's the short-term good news, then you probably don't want to hear the long-term bad news.

December 10, 2014
After recent Aso remarks, measures must be offered on fertility issue

Though many people have a negative image of elderly persons, the problem is that [some women] do not bother to have children,” Aso said in connection with our nation’s low birthrate and aging population.

November 16, 2014
Japan uses subsidies, video games to raise birthrate

Since fiscal 2009, Isen has given families 50,000 yen at the birth of their first child, 100,000 yen for the second and 150,000 yen for each subsequent child. To fund the initiative, the town decided to reduce the cash gifts given to elderly people.

Should real annual national income growth continue to fall, then perhaps we should not get too attached to the predicted income streams of our future Social Security benefits. Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart


Rob Dawg said...


Seriously another case of the smartest thing "they" ever did was hiding their huge gains behind anemic averages.

Stagflationary Mark said...

Rob Dawg,

No joke. Sigh.

Nathan said...

“Americans haven’t worried much about birthrates in the past, because we have the faucet of immigration to turn on and off,” said Andrew J. Cherlin, a family demographer at Johns Hopkins University. “It’s a bigger problem in Europe, where countries like Germany and Spain have much lower rates. And even at 1.8, we’re in the ballpark with the highest rates in Europe.”

Appeals to immigration as some magical solution to economic problems are completely specious. Would Japan be a wealthier country, or in any way improved, if it imported enough people from Central America to make its population grow?

Immigration might increase economic activity, but unless the immigrants are net contributors I don't see how it helps living standards in welfare states. It's especially odd to claim immigration benefits a society as the number of households in the US that are dependent on transfers (i.e. net tax takers) continues increasing.

IMO it's criminal to continue promoting policies that increase nominal GDP when nominal GDP no longer has any bearing on most people's standard of living.

Stagflationary Mark said...


I think your points are valid.

And if increasing the nonistitutional poulation was all that really mattered, then we could simply release all the inmates of our many prisons to boost our growth.

I'm not sure we'd get the kind of prosperity we are seeking though, especially if we did it all at once.

That said, I think we have way too many people in prison due to the War on Drugs. I find it hypocritical that alcohol is deemed okay but other "gateway" drugs are not.

I don't need the government to arrest me to protect me from me. I had Shingles earlier this year. I don't like taking drugs. I took about 70 Vicodin for it though and would have taken more if I had more. The pain was intense and that few Vicodin spread out over months didn't really reduce it much. I have no desire to take any now though.

Not everyone who uses prescription drugs gets hooked on prescription drugs, just like not everyone who drinks becomes an alcoholic.

Karlo said...

Personally, I'm all for low birthrates wherever they occur. I realize this isn't good for big business but who cares. It's good for the plant, good for a sustainable future.

Nathan said...


You might enjoy Michael Pettis' latest article on "How might a China slowdown affect the world?". His responses in the comments section are also quite good.

The main point I thought was interesting is that a rebalancing from investment to consumption in China (if it can happen) would be positive for growth in countries where production has been taken away by China (e.g the US). It might also be positive for growth in places that can't afford to pay what China pays for commodities (e.g. India and Africa).

Pettis takes a guardedly optimistic view of the future, which I think may be too optimistic, but whatever the outcome I think his framework is a useful way to reason about the potential effects.

Troy said...

I don't pretend to understand Japan.

40% of the population, gone in 20 years already. That's Black Death level depopulation!

But Japan was already horribly overpopulated, and not just in the cities, the cities got overpopulated because the countryside was making too many babies in the first half of the 20th century.

Economically, I think Japan won the 20th century, as evidenced by its NIIP, #4 among nation states, behind Taiwan, Switzerland, and Norway as % GDP, but of course eclipsing those toy economies in sheer scale, NIIP amounting to well over $2T in net savings.

But economies need distribution to function, and too much money in the wrong hands for too long freezes things up.

Japan's going to have to squeeze its "1%" a lot harder over the next few decades to get its fiscal picture in order.

Stagflationary Mark said...


It would seem to me that the ideal global human population could be over 1 billion but 10 billion does seem more than a bit excessive.

In any event, I definitely don't think humans will feel more prosperous at 100 billion.

Stagflationary Mark said...


I will check it out.

Stagflationary Mark said...


40% of the population, gone in 20 years already. That's Black Death level depopulation!

I wonder if anyone on this planet accurately predicted that in advance and what it would mean for their interest rates.

Stagflationary Mark said...


I read most of it, and his comments.

I am and have been very skeptical that China can rebalance. Time will tell.

Anonymous said...

It's interesting that if you hang with the top 10% (like say at a top 10% gym) there seems to be more pregnant females lately.

It's just hard to spot any of the economic bad-news when the economic classes mix so infrequently. I'm sure the top 1% probably feels the same way when they see so many happy top 1%'ers in the various places they hang together.

The system seems to be working perfectly for the top 10%, and the top 20-10% are just happy they aren't the bottom 80% . It was probably this way through most of history.

Stagflationary Mark said...


It's just hard to spot any of the economic bad-news when the economic classes mix so infrequently.

I think it would be much easier to spot if the food stamp program was replaced with actual soup kitchens. Sigh.

From a savings standpoint, I'm probably in the top 10%.

From an income standpoint, I'm probably in the bottom 40%.

I'd be doing much worse had I not bought long-term inflation protected treasuries and instead had piled into short-term treasury bills. I would be in the bottom 1% when it comes to income. Seriously. At 0.02%, I wouldn't even have enough annual income to pay one month's worth of property taxes. Go figure.

Behold the power of ZIRP.

(I'm not complaining. I can burn savings to live. I intend to die broke.)