Friday, June 26, 2009

The State of the Economy - why the bailout may have been necessary afterall

I have to confess that my liberal political bent still has not reconciled itself to the bailout of the financial sector yet. Nor has it come to terms with many other economic urban legends, such as the notion that the U.S. is no longer a manufacturing nation. No friends, I remain skeptical, but as skeptical as I once was.

Regular readers will note that I tend to go to original source data whenever I can, read and analyze it myself, and then draw my own conclusions. And I see no reason why the state of the economy should be an exception.

As luck, or good bureaucratic planning, would have it, the Census Bureau is able to help me look at both the question of "Are we still a manufacturing country" and did the financial sector really deserve a bailout. See, every 5 years, Census goes out and does a look at business. They collect sector specific statistic on number of employees paid, number of businesses in each sector, receipts, and payroll expenses. And they make it all available on the web. So, thanking my colleagues in that federal agency, I downloaded the data, and ran some graphs. The first is presented here - I'll be doing some more posts in the days ahead with other parts of the data.

I'll call two things to readers attention. First, with regards to manufacturing, I fail to see how we are no longer a manufacturing nation when that sector of the economy did $5.3 Trillion in 2007 business. Thats more then the individual Gross Domestic Product of every other country in the world. Nice try alarmists, but we seem to be doing just fine making things these days.

As to the financial sector bailout - no wonder Citi is giving raises, and Goldman Sachs expects their best year ever. The Financial and Insurance sector did $3.6 Trillion in 2007, meaning that $1 Trillion in loans and bailouts secured about 1/3rd of their receipts for 2009, without them having to really do much of anything. I'd love a pay plan like that, as I'm sure would a lot of small business owners. Interestingly, there were only 4 countries in 2008 that had GDP's higher then the Receipts of the U.S. Financial sector - The U.S., Japan, China, and Germany in that order.

The really galling part of the bailouts, however, is that the financial sector only had payroll expenses (the yellow line) of $494 Billion that year. The rest, I'm sure, went to a lot of overhead, but there is still ENORMOUS profit built in there. One wonders how much, if any was set aside in reserves. One suspects that a lot could have been.

So where does that leave taxpayers? Well, to be sure based on a receipts basis, if the financial sector had collapsed, it would have significantly hurt the U.S. economy. The numbers bear that out. But at the same time, the numbers also show that there are still plenty of other sectors that could have helped offset the loss. I know it isn't a perfect assessment, but I am left with even more questions then before.


Thomas Joseph said...

How do these data compare with the 1997 and 2002 Census data? Is it a sector growing as rapidly as the consumer sectors?

Philip H. said...

Good questions, and one I shall take up shortly in a follow-up post. for now, I'm digging out from my long-needed mid-summer vacation.

Thomas Joseph said...

I've kind of skimmed the 1997 and 2002 census data since I figured you were ignoring me :P

It seems as if both sectors are still growing. But I've slept since then so maybe I am misremembering.

Anonymous said...

professional, scientific, and technical services is listed twice.