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The Livin’ is Queasy

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Your daddy’s rich / And your mamma’s good lookin’
So hush little baby / Don’t you cry
Summertime, from Porgy & Bess by George Gershwin

As the school year winds down, summer officially starts.  You wouldn’t know it in the upper Midwest, where a cold rain has drizzled down nearly every day for the last month.  Though a lot of crops didn’t make it into the field on time, it’s really summer.  The thermometer might not say it, but the economic reports do.

Every year at this time there is a small recession, a general slowdown.  It’s why so many financial advisers avoid stocks this time of the year.  But wasn’t this year supposed to be different?  It was.  But it isn’t.  And that has everyone scrambling to explain why things are looking a little bit blue.

They shouldn’t.  This is normal – or normal amplified a bit by general uneasiness for the long haul.

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This Time Really is Different

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The year was 1930.  The greatest depression in US history closed around the nation like a dark shadow.  Congress was desperate to do something that put the nation to work again.  What could do it?  Rep. Willis Hawley (R-OR) and Sen. Reed Smoot (R-UT) had a plan – close down imports and make Americans buy products made in America.  Their plan, the Smoot-Hawley Tariff, raised import taxes on over 20,000 items to about the highest level they had ever been.  Nations around the world responded with their own tariffs, starting with Canada, slashing all trade in and out of the US in half.  Nearly everyone agrees that this made the Great Depression much worse everywhere.

Flash forward to 2013.  Japan returns the Liberal Democratic Party to power on the promise to put the nation to work again.  Their plan?  Not to shut down trade, but to increase it – goosing exports by lowering the value of their currency and making their stuff cheaper.

The situations and the plans are very similar, but the underlying assumption is completely different.  The world has passed from Nationalism to Globalism as the basic driving force.  And that difference is worth thinking through.

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You Were Worried About China?

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The best way to destroy the capitalist system is to debauch the currency.
– Vladimir Lenin

Barataria was a bit skeptical about Japan’s “Abenomics” back in January.  The first results are in, and they are amazing.  Their economy grew by a developed-world-leading 3.5% in the first quarter, and the stock market is up 28% in 2013.  It’s been called a “wealth shock”, and it’s very welcome in a nation that has been flat for two decades.   What could possibly go wrong?  Just about everything – and it’s likely to affect us here in the US.  Ready for really cheap electronic gadgets?  How about stagnating employment?

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Retiring Inequality

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Income inequality is one of the biggest barriers to sustained growth today.  You can’t have a consumer economy without income reasonably well distributed, and such an economy is going to have more sustained, reliable growth.  But as we’ve shown before, income inequality has grown since 1968, threatening long term growth.

Here is another way to look at that rising inequality as part of a long-term trend that defined 1968-2000 – the expansion of the workforce and subsequent collapse of that expansion that will solidify  when the Baby Boom hits retirement.  Economic changes are often demographic at heart, and we are due for some major upheaval that we need to be ready for.

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At the Break, Hometown Team Leads

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How is that recovery going for you?  Overall, the first quarter of 2013 has been a decent one.  Nothing is moving very quickly, but we are seeing progress.  It’s time to check back on the predictions Barataria made for the year and see how we are doing.

Back at the start of the year, it seemed as if the recovery had something to prove.  2012 was not a bad year, but it was only the foundation of a recovery.  A little bit of faith that things were getting better certainly had  a lot to do with Obama winning re-election, among other things.  But 2013 is indeed shaping up to be the year the recovery starts to seem real.

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