Last Summer, while flicking around the dial, I happened across an utterly fascinating Bill Moyers interview on PBS with Niall Ferguson and fellow historian Simon Schama. It was intriguing, and in many was, chilling. What I found so fascinating about it was that these two courtly conservative British scholars were sounding the alarm about the decaying U.S. financial condition, and nobody was paying very much attention.
This was in July 2003. Here it is, 8 months later, and a paper Ferguson (along with Laurence Kotlikoff) published in October 2003 is starting to cause waves. Its discusses many of the same issues which were covered in the PBS interview, only this time, its starting to gain traction amongst economists. Just this week, Arnold Kling of the Library of Economics and Liberty and Alex Tabarrok of Marginal Revolution referenced the Ferguson Kotlikoff paper.
I strongly suggets reading the full text (its only a dozen pages). To put it into richer context, read the Moyers interview with Ferguson and Schama. That frames the overall argument. If you want to read the abridged version, I put a few exercpts up here: The Triumphant Return of the British
Its a fascinating perspective, and one Americans have slowly been coming around to . . .
U.S. Power and Fiscal Over reach
National Interest, October 2003
Niall Ferguson, Simon Schama interview
PBS NOW July 18, 2003 transcript
(about halfway down the page)
Simple analysis: the 2004 Presidential election will turn on economic issues — notably, jobs.
Complex analysis: While a number of other issues will continue to get media play — the Iraq situation, the National Guard story, Gay Marriage — I’m not convinced that these are outcome determinative. They will very likely reinforce partisan views, perhaps moblilize one side or the other. They may impact some (but not many) swing voters. Perhaps the negative issues softens up the incumbent up a bit, and distracts his team from pursuing their own media agenda.
But none of these are unequivocably conclusive.
Tactical considerations aside, these are not the strategic issues (and I’m all about strategy) which will swing an election. More likely, these issues offset to some degree the awesome advantage incumbency gives a sitting President. But I remain unconvinced they will swing the election.
On the other hand: Two charts demonstrate where Presidential vulnerability lay. The first, from Thursday’s WSJ, shows the increasing job losses in rust belt state Ohio. As much as the Dems would like to blame this on W., its part of a longer term trend going back decades. The past few years do look particularly awful, however:
This is not the chart which will swing the election. Manufacturing jobs have been leaving the Mid-West for a long, long time. And while it probably is not a good election strategy to say, “Hey, that’s global trade for ya!” — just ask Greg Mankiw — this is by no means a new phenomena.
The economy slows, CD sales slow.
The economy recovers, CD sales recover.
If I am going too fast for you with this complex and sophisticated economic argument, please let me know. I can’t make this explanation any simpler, but perhaps I can find some crayons or blocks for you to play with.
The simple truism above is well known to everyone outside of the music industry. For unknown reasons, the music industry and the RIAA act as if they are exempt from the business cycle. Most sectors of the economy suffer during recessions — the exceptions are “interest-rate sensitive” groups, like Autos, Home, and Durable Goods, which benefit from the falling rates which usually accompany economic slow downs.
As we have been discussing for quite sometime now, sales of discretionary entertainment products like CDs are not an exception.
Despite the high, illegally price-fixed costs of a CD, you don’t yet need to take out a mortgage to buy one. So there is simply no reason to believe that CD sales have ever benefited from a broader economic slowdown. Yet judging strictly from the public statements of the recording industry over the past 3 years, one would never have even known that a post tech-bubble recession happened from 2000-2003. They simply never mention it. The New York Times, in an article about the continued uptick in music sales (“CD Sales Rise, but Industry Is Still Wary“), never reaches the issue of the economic weakness during the past three years.
As the economy weakened, so have CD sales:
Annual CD sales
Source: New York Times
Not surprisingly, industry sales are running parallel to the broader economy.
Indeed, in the aftermath of the world’s greatest speculative bubble, during a recession and a bear market which saw the Nasdaq lose 80% of its value, the sector only saw a 12% drop in sales during the same period. Its hard to undestand why music executives are wringing their hands over this; Most businesses would have been thrilled with “only” seeing their business off by 12% during this period.
Since then, we have seen an improving economy. Although consumer confidence remains shaky — mostly due to anemic job growth — we have seen a general improvement in spending. This has been especially true in the second half of 2003, as the hottest part of the Iraq war passed.
As the economy continued to gather strength, sales of CDs recovered. The last quarter of 2003 saw a marked marked uptick in total album sales.
In an apparent bid to completely confuse their readers, the NYTimes today has 3 separate stories on lagging job creation and the economic expansion.
The first one, in the Business section, answers the issue with a resounding No:
“Job growth is likely to remain tepid even as the economy moves ahead, according to a survey of professional forecasters by the Federal Reserve Bank of Philadelphia. Indeed, the bank said yesterday, the economists’ outlook for employment has grown gloomier even as their predictions of economic expansion are becoming more robust.
Economists have been puzzled for months by the sluggishness of the employment market. The new forecast suggests that they have come to terms with the pattern established in this recovery: fast economic growth being driven by even faster expansion in productivity, with businesses meeting demand by squeezing more output from their current employees instead of hiring more workers.”
The second article is decidely more rosy.