Drove myself nuts with this one.

This hierarchy of components of Personal Income comes directly from the BEA Table 2.1 file from last June. Point your mouse at the text below and click on anything that's underlined to toggle subtext. (Javascript required.)

1 Personal income

2 Compensation of employees, received

3 Wage and salary disbursements

4 Private industries
5 Government

6 Supplements to wages and salaries

7 Employer contributions for employee pension and insurance funds
8 Employer contributions for government social insurance

9 Proprietors' income with inventory valuation and capital consumption adjustments

10 Farm
11 Nonfarm

12 Rental income of persons with capital consumption adjustment
13 Personal income receipts on assets

14 Personal interest income
15 Personal dividend income

16 Personal current transfer receipts

17 Government social benefits to persons

18 Social security
19 Medicare
20 Medicaid
21 Unemployment insurance
22 Veterans' benefits
23 Other

24 Other current transfer receipts, from business (net)

25 Less: Contributions for government social insurance, domestic

Not everything stays in proportion to wages and salaries

Yesterday I looked at wage and salary disbursements, the government share of that.

After I wrote up that post, I looked at the BEA file a little more. Personal Income is made up of into several types of income in addition to wages and profits, including interest and dividends.

Well, you know me. The graph below shows interest income (blue) and dividend income (red) in comparison to the wage-and-salary number.

Graph #1: Interest (blue) and Dividends (red) in Comparison to Wages and Salaries
The Google Drive Spreadsheet is available

The Government Portion of Wage and Salary Disbursements

I got a file back in June from BEA -- Table 2.1, Personal Income and its Disposition. Lucky thing I got it then. If you try to get it during the government shutdown, you only get a shutdown announcement.

The file contains annual values for 1929-2012. It's one of those spreadsheets where the years go across the page, in a row. So before I could stand to use it, I had to transpose the data, putting the years (and the other categories) in columns. What I'd do without Excel, I do not know.

The largest chunk of Personal Income (or the one they list first, whatever the reason) is "Compensation of employees, received". The largest part of that compensation is "Wage and salary disbursements".

Two sources are identified for wage and salary disbursements: Private industries, and Government. I want to look now at the government portion as a percent of total wage and salary disbursements:

Graph #1: The Government Portion of Wage and Salary Disbursements
BEA Table 2.1, Line 5 as a Percent of Line 3

The first few years show a large and permanent increase, from 10% to around 18% of disbursements. Almost a doubling. Observe the dates: 1929 to 1933. The permanent doubling coincides with the Great Depression.

Since government share never went back down to around 10%, I suppose you could say we never really recovered from the Great Depression. I can't say that, though, because I can't see how things were before 1929.

Soon after, there was another near-doubling, but a brief and temporary one. It reached a sharp peak at 30% of wage and salary disbursements, then dropped even faster than it rose. This spike is related to the Second World War.

When the war ended, the government share fell back from 30% to below 18%. But it never fell back to 10%. I suppose you could say we never really recovered from ...


Consider the increase that occurred after the World War Two spike. The dates of that increase, approximately, are 1949-1974. The increase coincides almost exactly with the period that Dean Baker calls "the golden age of postwar capitalism": 1947-1973.

I thought it odd that the increasing government share of disbursements matched up with two and a half decades of unusually good economic performance. Maybe it isn't. Maybe it isn't odd. But I sure can't tell from here. I have to get from here to the other end of looking at some numbers.

Meanwhile... Happy birthday, Elaine!

// The Excel Spreadsheet from Google Drive, to preview or download. Includes the graph & data, the original BEA sheet, plus my standard three VBA modules.

homes for sale vs labor participation rate

At FRED:

The second item, yeah. But the first item, existing home sales series, that reminds me of the Mosler graph in my Chop Shops post. Warren Mosler was looking at "inventory of existing homes for sale vs the labor force participation rate".

At FRED, just one of the groupings contains the word "inventory". There are two series in that grouping, one annual and one monthly. Both go back only to 1999.

Graph #1: Inventory of Existing Homes for Sale

To that graph I added FRED's Labor Force Participation Rate, full period...

Graph #2: Labor Force Participation Rate (green) added to Graph #1

... and since 1999...

Graph #3: Like Graph #2, but only since 1999

... and since 2005, as Mosler shows it:

Graph #4: Like Graph #3, but only since 2005

Here, let me tidy up and remove the blue line:

Graph #5: Like Graph #4, but Without the Annual Housing Number

Here's what Warren Mosler shows:

Graph #6: Warren Mosler's homes for sale vs labor participation rate

I think we have a match.

Base money, again

I turned off the recession bars this time, as they are not entirely relevant.

Graph #1: Rate of Base Money Growth, 2000-2009

Graph #2: Rate of Base Money Growth, 1920-1932

Of course, the one graph ends in the Great Recession, and the other in the Great Depression.

The first graph shows in red the early years of Ben Bernanke's Chairmanship of the Federal Reserve. Looks to me like he was just going with the plan Alan Greenspan established before he retired. But some people say it was Bernanke's policy that created the Great Recession.

The second graph shows in red the years beginning with Roy A. Young's Chairmanship of the Federal Reserve. Does anyone today say it was Roy Young's policy that created the Great Depression?


Here's the big picture, so you can see where the two graphs above fit into it:

Graph #3: Rate of Base Money Growth, and a Repeating Decline

All the Presidents' Men

A few years back, Jazzbumpa and I disagreed endlessly about whether some particular graph showed an exponential pattern or not, or more like, or less like. In the middle of all that, one day I came across a post at Historinhas. Marcus Nunes had taken a graph and divided it up into sections. He showed that one of those sections fit an exponential pattern, and the others didn't. I learned something that day. And I've been going to Marcus's ever since.

Oh, and Jazz was probably right.


At Historinhas, in a post called The “Great Moderation”=the “Great Stagnation”? Not according to ‘phase diagrams’, Marcus Nunes evaluated Jazzbumpa's A New Look at Real GDP and A New Look at Real GDP - Part 2.

Marcus turns thumbs down on one of Jazz's graphs, in part because Jazz evaluates the data in 8-year grabs -- an 8-year moving average, and like that. Marcus says, "I don´t really understand his choice of periods. Why 8 years?"

But Jazz refers to the data trend over presidential terms. "The last data point in the term represents the performance of a given 8-year administration," he writes, "and the trend over the term can offer contrast to other administrations." I thought that was pretty clear.

Anyway, Marcus offers an alternative way to break the data into chronological packets. He uses common economic subdivisions -- the “Golden Age”, the “Great Inflation”, “Volcker Transition”, the “Great Moderation”, and the “Great Recession”. And he associates each time period with a different Fed Chairman.

I don't care for political subdivisions, myself. But that doesn't mean the economic subdivisions are better. For example, apart from the Volcker Transition, all of Marcus's categories describe not policies but results. The economy was golden, or inflationary, or moderated, or recessing: All of these are results.

Another objection: By definition, the "Great Moderation" ended when the "Great Recession" started, simply because the Great Recession was not moderate. That doesn't mean the policies differed in the two periods. I guess Marcus argues that the policies differed. I'm not yet convinced.

If Fed Chairmen are more useful to economic analysis than Presidents, then I ought to be able to find evidence of policy differences that correspond to changing economic conditions. That's where I'm going in this post.


The dates of Marcus's subdivisions vary some in his post (as perhaps they do in mine). I'll go with the dates on his "genie" graphs:

1955-1969	Martin	Golden Age
1970-1977	Burns	Great Inflation
1979-1986	Volcker	Transition
1987-2005	Greenspan	Great Moderation
2006-2013	Bernanke	Great Recession

I'll use annual data and I'll use Marcus's dates unchanged, except I'll stop at 2012 instead of 2013 (because we don't have the data yet for all of 2013).

What shall we look at? How about base money, for starters. That's a variable that is controlled by the Fed. As opposed to NGDP and RGDP and inflation and moderation, which are results of policy. Results of policy and other factors.

I got annual AMBSL (St. Louis Adjusted Monetary Base) numbers from FRED and made a graph showing "percent change from previous year" with each subdivision shown in a different color.

Graph #1: Annual Percent Change in AMBSL, 1955-2012

But the base money increase of the Bernanke years dwarfs all else. So if you want to see what Bernanke has done, the graph is useful. But if you want to see anything else, it's not. So I eliminated the data for the years after 2007, leaving poor Ben Bernanke with only two years on my graph:

Graph #2: Annual Percent Change in AMBSL, 1955-2007

Now at least you can see the "action" in base money since 1955. You can see, for example, that base-money growth was nearly as fast in the latter years of William McChesney Martin's chairmanship (blue) as it was under Arthur Burns (red).

You can see -- surprisingly -- that base-money growth under Paul Volcker (orange) was higher even than under Arthur Burns. And that under Greenspan (green), base money growth was not much lower -- though the up-and-down variation under Greenspan

was near twice what it was under either Volcker or Burns. So much for moderation!

I went back to FRED and recreated my graph there, as a visual check on what I was doing in Excel:

Graph #3: Annual Percent Change in AMBSL, 1955-2007

Finally, I did a new graph in Excel showing the whole 1955-2007 1948-2007 period, and put a Hodrick-Prescott trend on it -- the red line that looks like an old Volkswagen:

Graph #4: Annual Percent Change in AMBSL (1955-2007) and Hodrick-Prescott (Lambda=100)

Here's one more look at the trends in AMBSL growth, this time from my son Jerry's "Curve Fit" program:

Graph #5: Jerry's Computer-Fitted Trend Lines

So now, the main question: How and when did policy change? More specifically: Did policies change with the transition from Greenspan to Bernanke? That's the key question, because we had the financial crisis.

According to Marcus, things were great under Greenspan, and Bernanke's policies were wrong, wrong, wrong. But according to my last two graphs (with trend lines) the growth of base money began slowing in the late 1980s or early 1990s. If that's the case, maybe Bernanke did nothing worse than stick to Greenspan's plan, and get left holding the bag.


// The Excel Spreadsheet to view or download from Google Drive.

Think of it this way

Yesterday's graph compared corporate interest cost and corporate profits. Both were down near zero from the late 1940s to around 1970, with profits running a little higher than interest cost. Around 1970 the positions changed. Interest cost went higher than profits.

Both lines climbed gradually, side by side, until the late 1970s. Then suddenly, interest costs separated from profits and went through the roof.

To see how one data series relates to another, it is often useful to show them as a ratio. That creates one line to look at. The pattern traced by that line describes the relation between the two data series. Here, dollars of interest cost per dollar of profit:

Graph #1: Corporate Interest Paid, per Dollar of Corporate Profits

For every dollar of corporate profit in the late 1940s, corporations paid about 15 cents in interest costs. In 1960, half a dollar of interest cost per dollar of profit. And before the 1970 recession, corporations were paying a dollar in interest for each and every dollar of profit they made. A dollar of interest cost, instead of 15 cents.

In the 1970s, despite rising interest rates, corporate interest cost couldn't get upward momentum. Interest costs ran close to profits -- but above profits now, not below, as yesterday's graph showed -- until the late 1970s.

After 1977, everything changed. Corporate interest costs rose rapidly, to twice the level of profits in 1980 and to more than three times profits in 1982, peaking at about $3.30 interest cost per dollar of profit. Then, as interest rates fell, interest costs shot up to a new peak of nearly $4 per dollar of profit. Twice. Thereafter, corporate interest costs came down only reluctantly.

Graph #2: The FedFunds Interest Rate (red) Overlaid on Graph #1

Think of it this way. Suppose the rate of profit is 10%. You buy something for ten bucks. The corporation makes one dollar profit, so we know it had $9 of cost to make the thing you bought.

If this is 1948, 15 cents of the $9 cost is interest cost.

But if this is the mid-1980s, $4 of the $9 is interest cost.

Holy cow!

Camera bug

My wife took this picture at my request. That's the second woolly bear I saw in September, and both of 'em had the long black band in front, and a short black band at the rear.

What does it mean? Maybe that the winter starts out rough, but spring comes early?

Saw a third one just the other day, and he had the same pattern: long in front. Except, he didn't move at all, so I'm not sure it was the front.

A couple years ago all of 'em had tiny short black ends, both ends, and that was a very mild winter around here. It's funny how the color pattern seems to vary uniformly, different patterns in different years but great similarity in any one year. (If you can find "great" similarity among only three bugs.)

Kevin Myatt's Weather Journal recently had a picture of a woolly bear that shows the same long black slash short black pattern. From a comment by TQ on that post:

How to Forecast with Banded Woolly Bear Caterpillars
Long-range winter forecasters who use the banded wooly bear caterpillar look at the width of the black stripes on the worm's front and back and the ratio of black-to-orange.

With that information in hand, the following forecasting rules apply:
- If the black stripes are narrow – defined as less than half the worm's length – then the winter will be mild.
- If the black stripes are thick – defined as more than half the worm's length, then the winter will be cold or harsh with harsh being undefined.

Some banded woolly bear caterpillar forecasters can tease out additional information by looking out the difference between the front and back black bands:
- If the front band is larger than the back band, then the first part winter will be colder or harsher than the last half.
- If the front band is merely dipped in black, that portends a mild first half, whereas if the back band is merely dipped in black, that portends an early spring.
- If the caterpillar is mostly black, then winter will get cold early and there will be a lot of precipitation.
- If the caterpillar is all black, then the winter's snowfall will be light.
- If small brown spots are present, then the winter's dominant precipitation type will be drizzle

—
The 2013-2014 forecast!
Overall mild
Start of winter will be more harsh than the end of winter.
Early spring.

I know my dad kept an eye on the woolly bears.

I wonder if there was some cost that suddenly started eating up corporate profits, that caused a great moderation in the growth of real investment

Graph #1: Corporate Profits (blue) and Corporate Interest Paid (red)

(Pssst... This is a follow-up to yesterday's post.)