GDP and GDI Compared

John Magee alerted me to a news story in the March 29 New York Times titled “Is the Economy Growing Faster than We Knew?” (link). It holds a chart in which growth quarter to quarter is charted for two measures. One is Gross Domestic Product, the other is Gross Domestic Income.

These two are, as it were, the economy as viewed through the right eye (GDP) and the left (GDI). The first measures expenditures, the second measures income, and since every expenditure is somebody’s income, the two number should be exactly the same. And, yes. Theoretically they are. But different data collection systems are used to collect each, they tend to diverge, sometimes a little, sometimes more. There’s many a slip twixt surveys and press releases. I thought I’d show some data on these two measures in actual dollars—rather than in percentage changes.

This first chart shows the two measures on an annual basis 1990 through 2011. This chart more or less supports the theory. The two lines virtually overlay each other. In this period we had three recessions, marked with horizontal bars. The one in 1990-1991 and in 2000 were not severe enough to show up in an annual tabulation. The one in 2007-2009 was long enough to show decline of both. Notice that in some period GDP came in slightly higher, in others GDI was higher.

In this second chart I look at the recent period, 2006-2011 and by quarter. Here the differences are more easily seen. It would appear that in “good times” GDI leads the way and GDP follows. In bad times GDP holds the lead and GDI trails. The early signal that the economy is resuming growth appears in the first quarter of 2011. In that year GDI was leading the way the entire year.

GDP’s big components are Personal Consumption Expenditures (68.4%), Government Consumption and Investment (19.0%) and Gross Domestic Investment (12.6%). These values ignore net imports and are for the 4Q 2011.

GDI’s big components are Compensation of Employees (54.8%), the Net Operating Surplus (of companies and institutions, 25.6%), Depreciation (which is handled as income, 12.9%), and Taxes on Production and Imports (7.2%).

We might surmise that GDI leads in good times because compensation must be received before expenditures are made—and income dips early in recessions. When GDP leads in expansionary times, consumption may be partly fuelled by credit. But the measures, while they might signal the economy’s mood, are ultimately equivalent. No output without input—or vice versa.

The Church of England’s Income

Although the year for these data is not given, the website of the Church of England (link) states that it takes £1,040 million to run the church. This comes to £16.70 per capita—and amounts to 0.07 percent of the U.K.’s GDP in 2010 of £1.458 trillion. I looked up these numbers because I’m reading Trollope’s Barchester Chronicle series, and wondered just how important the Church of England is today. The church operates 13,000 parishes and 43 cathedrals.

These numbers, put into dollars at the current conversion rate, produce $1,654 million to run the church, thus $26.55 per capita; the UK’s GDP was $2.319 trillion.

Now for a somewhat unfair comparison—unfair because we don’t have an established church here and I can only produce numbers for total religious contributions for the United States. In 2010 we gave $100,630 million to religious establishments. That comes out at $325 per capita and is 0.69 percent of our 2010 GDP of $14.527 trillion.

It strikes me that this country is much, much more religious—but that’s well known of course. This would be so even if we doubled the Church of England estimates. That we are justified in doing so emerges when we realize that of the total population reporting to be believers, the Church of England claims 38.8 percent, other Christian denominations 50.3 percent, and non-Christian faiths 10.9 percent.

In the divide between “church” and “chapel”—and even more if we expand that to include “mosque”—the chapel carries the day.

Buy or Tax

The reason why an individual mandate—to buy insurance unless you have it from your employer or from the government already (Medicare, Medicaid)—is part of the health care act is because the Obama administration blinked. The government has full powers to levy taxes. Indeed the federal government has been collecting money for Medicare and Medicaid since 1966. In effect we’ve had a single-payer and centrally controlled health care system since then (thus for 46 years), but only for selected groups. This is a conceptually straight-forward approach. To get a workable national health care system, all we’d have had to do was to extend Medicare to anyone who is not already covered. In this country, however, there is a deep-seated traditional resistance to centrally-managed anything. Therefore, feeling that resistance, the Obama administration caved—and still failed to get bipartisan support. In my simple black-and-white world, if you can’t pass a proper national health care act—why then you walk. You say, like Mrs. Clinton might have said a while back, “Well, I tried.” You can’t make the horse drink.

The compromise then produces the controversy now. The compromise was to “let the private sector do it”—but with a half-hearted attempt to make everybody use the private offering. The battle now is couched in the totally irrelevant context of interstate commerce—and whether or not the government can compel anyone to buy—anything. This the government may not be able to do. But it certainly can tax. But the votes simply aren’t there to solve the problem in a straight-forward manner—by taxation.

Now conceptually I see no real difference between forcing me to pay a tax on the one hand and forcing me to purchase health insurance on the other. In either case I have to cough up the dollars. But if this is seen as opening the door to government-mandated purchases in general, I’m not surprised that the Supreme Court seems skittish; reader russell provides some of the Court’s misgivings in a comment to the earlier post on this subject (link).

More realistically, an insurance-based approach is inferior to a central-single-payer system. It costs a whole lot more. A national system does not, per se, prohibit an insurance-based system to coexist with it. A national system will always involve some rationing—and an overlay of insurance-paid extra benefits will satisfy the rich.

It is for these reasons, needless to say, that you won’t find much praise for the current act anywhere on LaMarotte. It is flawed in conception—and now it might fail in detail. At best it will be upheld by a 5:4 vote. If it goes down, Medicare and Medicaid may follow. After all a designated tax—designated for health care—may in some future lawsuit be judged to be a mandate to buy something—which it actually is.

Circus Census

So how many circuses do we have in the United States?—and now I mean the authentic kind, not what goes on on Wall Street and in Washington, DC. Are you guessing two: Barnum and Bailey and Ringling Brothers? Think again. Wikipedia has a kind of census of circuses (link), where you can get an actual count with some effort. Here is a list of circus counts across the world:

United States	57	Argentina	1
United Kingdom	20	Cuba	1
Australia	14	Finland	1
India	5	Malaysia	1
France	4	Mexico	1
Germany	4	New Zealand	1
Canada	3	Norway	1
Ireland	3	Poland	1
Italy	2	Russia	1
Netherlands	2	Spain	1
Pakistan	2	Sweden	1
Albania	1	Switzerland	1

Interesting, isn’t it. Surely the United States is the successor of Rome when it comes to the defining characteristic of that old center of power. And as the statistics show, the English-speaking world is overwhelmingly dominant. To save you the effort of counting, the list shows 129 circuses the world over. Amusingly, the place where they first arose, in Italy, has not been able to keep up with the competition. I thought I might show this seeing that my blog’s motto, above, promises information on “bread and circuses” along with other news. Bread will get its moment on LaMarotte some other time in the future.

Litigation or Legislation

The lawsuit joined by twenty-six states under Florida’s leadership reminds me that workable democracy really does require a kind of minimal consensus in the nation. When such consensus exists, democracy is workable. When it does not, a spectrum of dysfunction appears. It ranges from stagnation at one end to civil war on the other. We are currently living in such a dysfunctional era—and this lawsuit makes it easy to see it. Here is a map of the states that oppose the Patient Protection and Affordable Care Act, aka Obamacare:

The states shown in pink are all headed by Republican Governors. The two states shown in purple are governed by Democratic Party administrations, but in each case the attorney general is a Republican; each has joined the suit, but each under protest; the governors and legislators in both cases assert that the AG is  not speaking for the state in joining.

If diplomacy is “war by other means,” so is litigation when it manifests in patterns such as this. This lawsuit is a symptom of another and more grievous condition—the loss of a national consensus. At its heart is the claim that it is unconstitutional to require people to spend money on health care. But of course in every state on this list, laws require individuals to spend money on auto insurance. Unable to see a meaningful functional difference between the two cases myself, I must conclude that this effort is at bottom political and has nothing to do with health care.

It’s strange to live in a country that is in process of exploding into fragments. The timescale of this explosion is very slow, but it is real enough. As John Edwards said a few years back, there are two Americas. They are hopelessly woven and mingled—and trying to separate. If a successful legislative initiative, such as health care, is not allowed to stand—if it is immediately undermined by litigation—and if such moves are indeed applied to every legislative action by the opposing party, and always along party lines, one is already living in the state of nature, not in a republic governed by laws.

Health Care Outcomes

National health care expenditures, usually expressed per capita, do not correlate in a linear fashion with health care outcomes; if they did, the United States would be at the top. We are first in per capita expenditures but rank 37th in health care outcomes among the 191 countries the World Health Organization tracks in its surveys. I got curious about these rankings. How are they calculated?

I discovered that the rankings everywhere quoted derive from WHO’s World Health Report for 2000, which is based on 1997 data. Many of the basic statistics of which that ranking was built have been updated in subsequent WHO annual reports—but have not been combined to yield an updated world ranking. What we are looking at, therefore are ranks obtained fifteen years ago.

These rankings were built up by measuring five basic indicators. These were (1) life expectancy, usually rendered as DALE for “disability-adjusted life expectancy”; (2) the distribution of DALE across age groups, which was measured by looking child survival; (3) responsiveness of the health care system to the needs of the population and (4) the distribution of this response, measuring the degree to which it reached the whole population equally; and (5) fairness of financial contribution. WHO’s definition of fairness is that all households’ out-of pocket expenditures will be roughly the same, measured as a percentage of income exceeding what is needed for subsistence. This implies a subsidized health system.

The five categories shown were labeled the “goals” of the health system: high life expectancy and low infant mortality, a responsive system that reaches all inhabitants in equal measure, and a fair apportionment of total costs based on ability to pay. Data on health expenditures per capita were finally added. Then, with uniform weights applied to each category to indicate relative importance, an Overall Health System Performance rank was calculated.

In 1997 the United States ranked first in responsiveness and in per capita expenditures on health care. It was 24th in life expectancy, 32nd in “distribution” of life expectancy, thus infant mortality, third in the “distribution” of responsiveness, 55th in fairness of financial contribution, and 37th overall. A tabulation of the best and worst follows. The original WHO data may be viewed here. Annex Table 1 contains a summation.

Health Care System Performance in 1997 - Best and Worse
Best
France	1
Italy	2
San Marino	3
Andorra	4
Malta	5
Singapore	6
Spain	7
Oman	8
Austria	9
Japan	10
Worst
Angola	181
Zambia	182
Lesotho	183
Mozambique	184
Malawi	185
Liberia	186
Nigeria	187
Democratic Republic of the Congo	188
Central African Republic	189
Myanmar	190
Sierra Leone	191

See Yonder Star

Monique Magee sent me a “Chart of the Day” produced by Goldman Sachs’ Alec Phillips illustrating how far apart and above every developed country the United States ranks in expenditures on health care. Mr. Phillips used OECD data (Organisation of Economic Co-operation and Development). His chart was a little murky for me although the pattern is clear enough (link). To make things clearer for myself, I found the OECD data on Wikipedia (link)—where the actual numbers and names of all countries are readily accessible. Below is my version. It charts health care as a percent of each country’s GDP against health care expenditures per capita, all in dollars with equivalent purchasing power.

I am showing the names of some of the countries. All may be seen using the Wiki link I provide above.

Staring at this chart, the feeling came that I was looking up at the sky. Lots of bright stars visible—but one of them is higher and brighter, as it were, than all the rest. 

Foresight in Hindsight

At least our day-to-day economic indicators go up and down entirely based on rumors and expectations. Yesterday an Australian mining giant, BHP Billiton noted that Chinese orders for iron ore were weakening. Hysteria whipped across the world immediately. The value of the Australian dollar fell. Why? I’m told that the Australian dollar is an early indicator of the Chinese economy’s future performance. Notice the circularity here. It’s not that the Chinese economy has tanked; no. It’s expected to tank; and when it does, the Australian dollar will (presumably) reflect that; therefore sell that damned Australian dollar now, before it has time to signal that China is starting to tank. Wow! The New Zealand and Canadian dollars also immediately lost value—these countries being big traders with China. Crude oil also slipped in  price—after all it is China’s demand that keeps the price up. Commodity futures prices dropped as well.

The longer a person’s or institution’s time horizons, the more intelligently each will behave—but that applies to long-term views. The reflex behavior of markets to indicators, hints, indeed to mere omens of change is driven by something rather low—the same urge that brings ducks to the edge of the pond when someone appears holding a paper bag. Everybody tries to guess the future and act a few nanoseconds earlier than anybody else in anticipation—not of real events, exactly, but of the anticipated mental reactions of other traders. And this is called sophistication. It is before this superior duck-style wisdom that we bow and scrape and look up in admiration at the Lords of the Universe.

State-Approved Gambling

It comes in waves. The most recent wave began to rise in 1964. In the period 1894-1964, no lotteries were permitted anywhere and only Nevada had casinos, permitting them to operate anywhere in the state. The public sector’s gambling fever set in in 1964 when New Hampshire instituted a lottery, followed by New York in 1967, and then New Jersey in 1971.

The following tabulation, which I’ve constructed from Wikipedia’s article on “Gambling in the United States” (link), shows the situation at the present time. Data are for fifty states and the District of Columbia.

	States that
Category	Permit	Prohibit
Charitable	48	3
Lotteries	44	7
Pari-mutuel	40	11
Indian	28	23
Racetrack	23	28
Commercial	18	33
All of above	3	2

The states that permit every kind of gambling are Iowa, Louisiana, and Michigan. The two states that prohibit gambling of any kind are Hawaii and Utah. Tennessee prohibits every category except lotteries.

Charitable gambling, of which the most popular form is Bingo, is used as a fundraiser by charitable organizations. Pari-mutuel betting is usually associated with horse or dog racing. The category labeled Indian signifies that the wagering is superintended by a Native American tribe. Commercial, in the designation above, refers to casino or riverboat gambling.

Pari-mutuel may not instantly communicate the process—but everybody knows it. It is a form of wagering where betting is closed before an event begins and the payout is based on the odds. A horse or hound everybody thinks will win—and therefore garners most of the bets—has low odds. A horse or hound no one thinks will win gets high odds. It works like this. The total bets are pooled. Suppose that the total is $1,300—net of racecourse commissions. The total bets on the winner were $90. We then determine the odds by dividing 1300 by 90, yielding 14.44. Every winner gets $14.44 for each dollar he or she bet. But lets suppose, instead, that most of the money went on the winner, say $900. Then the odds are 1300/900 or 1.44. The yield now is much less.

Gambling in 2009, based on a tabulation in the 2012 Statistical Abstract (Table 1259), amounted to $89.3 billion. The three big sectors were Commercial casinos, Indian casinos, and Lotteries, together accounting for 93 percent of all gambling revenues. Growth trends in the 2000-2009 period were uneven. Indian casinos grew in that period at an impressive 10.3 percent annually followed by Lotteries at 4.3 percent. Charitable gambling declined at a rate of 1.9 percent yearly, pari-mutuel betting did worst, declining 3.6 percent a year. Commercial casinos displayed anemic growth of 1.9 percent a year. Clicking on the graphic will enlarge it, Esc returns.

Views on state-promoted gambling tend to be shaped by values. A cynical but rational view is that such gambling is avoidable taxation. A more communitarian view holds that it exploits human weakness and represents regressive taxation. The interesting question is what happens next—meaning what happens when the market, as it were, gets saturated and embracing gambling no longer yields the supposedly free benefits of lower taxes? Revenues were dropping in the 2008-2009 period, but selective data (on commercial casinos) showed a degree of “revival” in 2010. 

St. Patrick's Day

By coincidence I began this second edition of LaMarotte on St. Patrick’s Day last year. The coincidence serves to remind me today that this is an anniversary. Since then I’ve made 209 posts. The favorites include posts on what might be called the subject of infrastructure. Top ranked was an entry on hydro and nuclear energy the world over, fourth ranked a post on electric power in the United States. Most read posts are shown in the left column. More tellingly, perhaps the three other posts that make up the top five are about math or measurement, thus perennial subjects rather than the flow, as it were, of generally very mixed news about the U.S. economy.

My basic interest is in economic fundamentals, something best measured in jobs. Employment trends, therefore, are a central focus here. My other focus tends to be on energy—arising from the conviction that humanity is passing through a unique and time-bounded period, the Fossil Age. The conventional economic focus is on money and on growth. But real wealth is rooted in nature and in labor. The fundamental growth-figure, therefore, is that of the population; economic growth should reflect population growth, but not much more than that. The vast growth in economic well-being since the nineteenth century has been due to the discovery of coal, oil, and gas—their sum a diminishing resource. Their exploitation through technology and automation is increasingly depriving the people of jobs. Our time horizons are short. We don’t collectively internalize what this sort of process means in the long run—assuming, as we must, that the Fossil Age will end, probably before this century is over.

Contemplating this picture—and the collective disregard of the vectors that are becoming visible—is at best sobering. I wish more people would do it. By way of diversion I turn my attention here to such fun topics as math or science or technology. Technology is particularly interesting. The modern attitude is firmly anchored in the belief that technology will save us—but ignoring the obvious fact that without free energy, which is what the fossil fuels really represent, our technological civilization is actually doomed. And the great faith in the solar solution? Well, my view is that humanity lived on solar energy exclusively from the very dawn of time to the discovery of the steam engine, which suddenly made coal “interesting.”

Two is an Ellipse, Three Chaos

A while back I finished reading one of my stellar Christmas gifts, Mathematics: The Loss of Certainty by Morris Kline. It has the singular distinction among books I’ve read that about a month after I’d finished it, I began to read it for the second time again. Yes, I do; I read books over and over; the good ones; but usually each reading years apart. One of the intriguing discoveries I made in this one, early, is that there is no straight-forward way of calculating with precision the movement of three bodies linked by gravitational attraction, what is known as the three-body problem. Newton tackled this problem after he had elegantly solved the two-body problem—thus, for example, the  movement of the earth around the sun. In such calculations, one assumes that one body is standing still and then measures the other, and the upshot is that the moving body’s orbit is elliptical. But when minimally three bodies are involved, precise prediction of their interacting movements can never be produced simply by the applications of algorithms; only approximations are possible. Imagine that. We can observe, we can measure, but we can’t predict precisely using math.

However splendid the Internet, mathematical subjects are almost never covered well for the amateur. Virtually all are written by mathematicians for other mathematicians. I make this post to note an exception. It is the explanation of the three-body problem by Ask a Mathematician / Ask a Physicist (link). Very nice explanation. The last comment on this article suggests that the problem has actually been solved satisfactorily. That comment is best ignored. The solution there requires that we succeed in summing up an infinite series; but who has time to do that?

Employment Change by Sector, January to February 2012

After publishing the BLS numbers on employment change yesterday morning, I noted that the press coverage was far more enthusiastic than the numbers actually warranted. After all, the increase was lower than the month before. Chalk that down to election-year hype. We’re committed to the myth that government can create jobs. My view is that government can certainly destroy jobs—by failure to enforce the laws or, by neglect, creating an environment favorable to corruption. That, surely, explains the Great Recession. But as for creating jobs, the government only does so by actually hiring people. But this just an aside. Herewith the details on the employment change by sectors:

Here, again, I think we should curb our enthusiasm. Four of the 12 private sectors showed actual losses in employment. The largest increase was in Professional and Business Services, the addition of 82,000 jobs—but my excitement certainly drooped when I noted that 45,200 of those jobs, thus more than half, came from Temporary Help Services.

And, sure enough, Government once more lost employment. So much for Government creating jobs.

Here, of course, I would emphasize that my reactions are not, repeat not, motivated by political partisanship. If there is one party that I look upon with disfavor, it is the News Media. It almost never tells it like it is.

BLS stands for Bureau of Labor Statistics.

Employment Update: February 2012

The February employment data released by the Bureau of Labor Statistics this morning (link) might be labeled “business as usual.” I showed an employment gain of 243,000 for January. That number was modified upward to 304,000. The results for February fell short of that: 227,000 jobs gained this month. Better a gain than a loss, but the rhythm is still very slow.

We lost 8.7 million jobs in 2009 and 2010. Since then we’ve recovered 3.4 million, or 39 percent. Still a long ways to go. Herewith the updated chart:

Coming Soon to a Freeway Near You

A year ago Florida introduced cashless toll roads. Cameras arranged above the toll ways photograph passing vehicles’ license plates. In due time the auto’s owner gets a bill for the toll charge. The system is at present limited to the Miami/Dade region and south, including the only convenient freeway that gives access to the Florida Keys. As best as I can make out, the only other state that “offers” this new convenience is Texas—but I understand that Missouri is pondering such a scheme as well. Progress, progress.

Here the consequences of a political culture where cutting taxes has taken on the rudiments of a new religion. Just ponder the benefits. Foremost among these, from the states’ point of vantage, is that people employed in collecting tolls at booths may be laid off; in the construction of new toll ways, toll booth construction may also be avoided—although mounting metallic structures to hold the cameras will be a new cost. No people needed. Lenses and computers do the whole job.

What this portends is that, ultimately, all roads will turn into toll roads once cities catch up with the states. As technology makes yet another leap, it may also be possible, perhaps, to measure the intake of air by people breathing as they walk on public thoroughfares, like sidewalks, and air intake will then be tolled next. That, of course, will generate additional exciting industries such as breathing masks with little tanks, the oxygen inside them priced just a mill or so below the cost of the cashless air toll of the future.

Ain’t it grand to be living in our hi-tech times?