Sunday, June 28, 2009

A Green Economy Creates Jobs... And Kills Jobs Too

President Obama frequently touts all the new jobs that will be created as a result of an investment in a new "green" economy. He's especially been on the march since Friday when his massive climate change bill called cap and trade was passed by the U.S. House of Representatives.

He's right. It will create new jobs for certain companies that may have a competitive advantage in it and/or can take advantage of all the dollars that will be flowing into it via guvment subsidies. The money goes out. Somebody gets it. For those companies that get those dollars it is a potential bonanza.

Unfortunately, all is not as sweet and tasty as Cheesecake. It will kill jobs in companies and in regions that rely on current modes of energy production. That may not be all bad if you're replacing ugly emissions producers with clean emissions producers and the job loss to job gain ratio is about even. It's actually unlikely that's the case because existing companies utilizing current energy producing methods are already operating at lower relative costs since they have an existing infrastructure and certain inherent advantages. Producing and transporting coal or oil, for example, so that it can be useful is cheaper as it is now than solar, wind, or ethanol. Otherwise, the shift would be more pronounced by now because we would already see it being adopted more widely than in it is. Alternative energies have been around for many decades now. Since it is more costly per unit to widely utilize alternative "green" energy sources, it is not widely used.

The other aspect of this "job creation" legislation is that consumers will have to pay in utility bills for it. Expect your monthly electricity and maybe gas bills to go up at least $20 to $30 per month and probably more. Ultimately, this bill also makes it more costly for business to operate. Especially for business that are heavily dependent on energy as an input to their production processes.

In the end, it is consumers and other businesses that lose. Whether the gains from new "green" jobs offset these loses is doubtful. But who knows? Maybe we can hope and if we hope hard enough we will see that "green" energy will usher in a new era of peace and harmony for all of mankind. And maybe some of ladykind as well.

The alternative would be to have existing energy producers become more clean. This is akin to the reality that the car industry has cars that offer much higher mileage than a decade ago. Some models get over 50 MPG now. This requires patience. I guess that since we're in yet another crisis we might as well shoot first and ask questions later. Adding costs to businesses and embarking on an uncertain probable net job killer is yet another reason why I am so pessimistic on an economic recovery anytime soon.

Saturday, June 27, 2009

Peggy Noonan's Reflection on the Old and Young

Peggy Noonan had a profound paragraph today. I find that I am still young enough to appreciate the fact that a new crisis may really be a crisis. But I am not young enough to think that every "crisis" is really a crisis. I am veering old, though because I tend to find Obama's hope and change campaign and all the radical policies with a supposed brave new world as basically what a teen or 20-something with little real experience would do if they were running the country. Anyway, enjoy:

"Mr. Obama's White House is, at the moment, like most new White Houses. Every administration wants to do great things. Or, rather, it wants greatness. It wants to break through on some great issue or issues and claim to be, as they used to say, consequential. There's a busy hum of action. It can cause a blur. Everyone who works for a nation gets carried away. They're all swept up. It's understandable. They're working in the White House, they're mostly young—only the young can take the punishing hours, and only the young have lived through a limited enough history that they think everything counts and everything matters, which is how you want people in a White House to feel. In this they are like the young reporters and anchors on weekend TV. The storm comes and it's the biggest storm ever, or the most terrible brush fire. They're like this because it's their first hurricane. If the sin of the young is to blow things out of proportion, the sin of the old is no longer to notice true dimension and size. It's their 30th revolution after all, how big a deal could it be?"

Friday, June 26, 2009

Science and God ... or, God and Science

This is from a reply I wrote to an op-ed on Science and God in the Wall Street Journal. It is something not related to economics for a change!

This is a thoughtful argument although it feels familiar and retread to me. The conclusion that reason is the better guide in human affairs, which you use the current situation in Iran to illustrate the point beforehand, is a little dishonest. You seem to be implying the old canard that religion and belief just leads to wars while "reason" helps us to move beyond that. Are you truly suggesting that a world based on reason would end the human tendency to have conflict? A world of reason as the strict guide would actually lead to a harsh world even if you assume people benefit through cooperation. Sometimes it's reasonable not to cooperate. If reason is the only restraint, well, you'll find it's not much of a restraint.

Reason and faith should and do coexist even though you do have fundamentalist problems that you rightly point out. The basic problem with an entirely rational emphasis is that it is insufficient to explain the whole of what it means to be human. It may be sufficient to explain science but only because science is itself limited in what it does and what it can definitively predict with certainty. Humans are rational but they are also intuitive and far more complex than the study of the natural world - with all due respect to the methods, rigor, and analysis required of the scientific method. Transitioning natural science into the study of social science is not scientific in the same sense. The data is different and certainty cannot be the same because human relations are different and uncertain. My position is that my Christian faith does not have to be nor can it be entirely rational. Nor can a religion be irrational. It's just that at some point rationality runs its course and has its limits and an intuitive feel comes in. This may be what John Calvin referred to as the knowledge of God being imprinted in our hearts. We all have an innate desire to know God that goes beyond simplistic scientific rationales. There is something innate about that desire throughout cultures and time.

Thursday, June 25, 2009

I'm in A Bad Mood on the Economy Again

An article in the WSJ about the potentially vicious downward spiral in business capital investment made me revert to my previous gloom and doom position on the economy.

In macroeconomics there is a classic equation to express national income: Y = C+I+G+nX. The Y is national income, the C is consumption, the I is investment, the G is government, and the nX is net exports. C is way down right now because people are not consuming since many are unemployed. I is down as well because people are scared to death to invest right now. No sense investing if people aren't consuming and we have a Commander in Chief who doesn't know what he's doing. Of course life moves on and people still care about their finances. Nevertheless insane fiscal policies dampen the outlook.

At least G is massively on the rise. The problem with expanding G via cartoon level spending is that it is too phased in and takes too long. It could be useful if it enters the economy upfront and just shocks demand and C. Unfortunately, there is the lag in fiscal policy that entry level econ students learn about. Phasing in G over multiple years doesn't have the effect of the other options such as tax cuts or investment tax credits do. In fact, it ends up just wasting money and delaying recovery since the focus is on providing jobs rather than encouraging people to invest, take risks, and become entrepreneurs who may provide a valuable product or service heretofore unknown such as Microsoft in the 1980s or Cisco or even Starbucks.

So all in all, I truly think economists are in for a rude awakening. I truly don't see a recovery anytime soon. The other day I thought I was seeing some gloom but the doom was dissipating. But I still can't help but feel that both of our harsh friends will be with us for some time to come. All the while, Obama's favored by 60% of the American people. Apparently it's still W's fault. Amazing.

George Will on the Fallacy of a "Green Economy"

A worthwhile read from today's Washington Post, an article on how for every green job created, 2.2 other jobs are lost in other industries.

Wednesday, June 24, 2009

Higher Taxes Kill Jobs: Example 2388

A sad article on how the recent increase in tobacco taxes to fund the SCHIP kids health care fund, and the recent adoption of widespread city smoking bans, is resulting in 500 Florida people losing their jobs.

Taxes matter. This shows how a higher tax rate on anything combined with regulation ends up killing businesses and ultimately defeats the purpose of bringing in higher revenues. A closed business doesn't pay taxes. This is just one clear example for today's news. But this applies to any business and industry.

Some Good Economic News

Well, for the first time since I started this blog there is what I would consider to be some seriously good economic news. With me it's usually doom and gloom. Every so often some good news puts a smile on my face.

The news are in two sets of data that were released. First, there was an improvement in home sales and in durable goods orders. Granted, the data is for May and people tend to sell homes at this time. The kids are done with school, the weather's nice, and it's a good time to get settled in a new area if you are going to move. So I am not going to say it's great and that we're back because of it. But it's good. The second piece of data is that durable good orders rose. This is important for manufacturing. It means companies are buying new stuff in anticipation of selling new stuff. During the first 3 months of the year companies tended to hold back on new orders and depleted their inventories. So this could be a short-term gain where companies are stocking up goods after scaling down their inventories to the bone. It's not necessarily a sign we're back. But it's good.

All in all, I am cautiously pessimistic. Given the president's policies and the pending healthcare and carbon cap tax disasters around the corner, that's not bad for me.

Sunday, June 21, 2009

California Dreaming

I remember way back when I was studying in college, in between parties with Bluto, Neidermeyer, Larry Kroger, and Kent Dorfman and the whole rest of the cast of my crazy Animal House buds, reading the student newspaper. Those were crazy times. Naturally, the newspaper was written by liberal idealists who nobody really knew.

When you're a college kid it's a pretty ideal world with seemingly endless possibilities. Especially in the really good schools, where you're told you can have it all. I remember finding that to be a bit naive even back in the good ole days.

Which brings me to California. For years Cali has tried to have it all. During the good times earlier in the decade, the good times were really good. For some, it was really, really good. They were able to have internet millionaires and a seemingly limitless social welfare system. Well, times don't stay good forever. Every economy has ups and downs. The problem with California is that they instituted so much government that it became like a woven fabric in people's lives. Whether through welfare or the daily high sales and income taxes, in one way or another it was unavoidable. Of course I must confess I haven't lived there. But I've been there and couldn't help but notice that everything seemed more expensive and crowded.

And now the people of California are suffering.

This is really tragic because it affects the least of us the most. You see, capitalism stinks until it really stinks. When you stifle the engine of economic growth and make it onerous for risk-taking people to channel their efforts into potentially profitable ventures you lose a lot more than a wealthy neighbor. When you create an environment where risk taking is lame and business ain't cool because we like ill-defined terms such as "social justice", which doesn't actually mean anything if you try to actually define it, you end up with words that lead to little. Of course, bashing the rich is always fun. Until they sit it out or go out of business. And it really stinks when those same rich people decide to lay you off.

What my college newspaper editors didn't seem to realize is that it is capitalism that makes the school they attend thrive and their experience so rich. Somebody's got to pay for the new lab. Somebody's got to pay for the ornate buildings and the nice facilities. Somebody's got to pay to maintain the luxurious green quad. Somebody's got to pay for teachers to have the freedom to write socialist, liberal blather divorced from reality. When that somebody, whether Dad, rich donors, or the state can no longer pay, you look around and realize that maybe socialism ain't all that good. Socialism can level the playing field and reduce income inequality. It does this by basically bringing the top earners down to the level of the poor earners. It doesn't lift most boats. It doesn't make the poor wealthier or more productive. By essentially eliminating incentives, how can it?

We'll see if all the liberals in California come to that realization. Many of the young will. Unfortunately, dreams in a dreamers head envisioning how they may usher in an ever improving society through government, public service, and clever public relations mobilization campaigns die hard. It's sad when people can't see the forest from the trees. My heart is with the people in California, especially the young students who will lose out on a quality education. I didn't grow up rich myself so I have an idea of what it's like to attend a mediocre public school.

This is not a failure of capitalism. It's a failure of others to allow capitalism to work. Capitalism is not perfect and some tweaks need to be made, especially with debt and complex financial market instruments. But it's still a good system. When capitalism is not appreciated and nourished, we all lose. And some lose bigger than others.

Friday, June 19, 2009

Here Come the Taxes...

An article states that the following items and people are being considered for a tax hike to fund government health insurance:
The final price tag for that effort could top $1 trillion, with cuts to Medicare and Medicaid covering the rest of the cost.
The tax options include:
- Increasing the price of soda and other sugary drinks by 10 cents a can.
- Applying a potential 2 percent income tax increase to single taxpayers earning more than $200,000 a year and households earning more than $250,000.
- A new employer payroll tax could target 3 percent of employers' health care expenditures.
- Taxing employer-provided health insurance benefits above certain levels - a less likely option but one that still is in the running.
Notice the tax has gone down from the $250K to $200K since the campaign. Several articles mention a national sales tax to pay for it as well. If the payroll tax or employer-provided health insurance is going to be taxed than I suggest you not ask for a salary raise because you probably won't get it. Ultimately, your employer isn't going to eat these costs. You do! Don't like it? Good. Leave and try to go find a new job in this economy...

So Much for Obama's "Modest Government Intervention"

An article in the WSJ reports that "industrial loan companies" (ILCs) are being targeted under Obama's financial regulation proposals. The 2nd paragraph of the article describes what an ILC is.

The article reports that ILCs are being "squeezed" - by whom or how hard is unknown. What should be clear is that Obama's claim that he is intervening modestly and only due to a crisis are disingenuous. This is part of a growing trend where President Obama says one thing to give the impression that what he's doing is modest but the actions have unintended consequences that ripple through the economy. It's stuff like this, which makes me so negative on future economic growth prospects. I think a lot of the economists who are surveyed about economic predictions who believe we're in for a recovery because of this or that piece of data are not thinking strategically and lifting their heads up to see that the president's instincts are bad for business. It shouldn't be surprising that broad financial regulations developed by liberal people with no business and financial sector experience will prove to be poorly designed. The financial sector is a broad and complex industry that is vitally important for all business sectors. Finance is the lifeblood of an economy. It isn't just banks. So when Obama's advocating "structural change", you can't easily or beneficially do that without choking it off if you're proceeding in this way with people who don't know much about it.

Initial steps towards socialism are always somewhat modest. They have to be incremental especially in a country like ours where socialism is so foreign. Obama is overstepping his mandate on a daily basis. People elected him in part because he was perceived by enough independents to be moderate. They did not elect him to start a march towards socialism. One silver lining in these clouds is that he's defining who he is. As he does so, the Republican party will be able to rightfully claim he is an anti-business, deficit creating, socialist whose policies are actually preventing a recovery. I believe that's why he's starting to slip in the polls and why, if the Republicans don't give in and vote for this garbage and get tied to it, they will win a lot of seats in the Congress in 2010.

Wednesday, June 17, 2009

More Healthcare Cost Stuff

There was an excellent article on health care costs and total compensation in yesterday's WSJ.

It basically argues, correctly, that increasing health care costs tend to crowd out large salary increases. Employers factor in the total cost of compensation and not just salary. So, as health care costs increase, businesses cut back on raises. This doesn't necessarily make businesses less globally competitive as Obama puts it. It just changes the mix of compensation. The WSJ article does make a worthwhile point about how healthcare costs can lock people into their jobs and discourage entrepreneurship because people are concerned that going out on their own will result in a potential business starter staying put with the salary and stability. I've been there (I am there) myself. You could argue that a better healthcare system (not a government run one) could encourage the very thing that encourages job creation and economic growth. Instead of going in a direction that does that, we're actually more deeply entrenching the problem by having the government run things rather than the insurance companies. I would prefer neither, but given my experience, I prefer government even less.

Monday, June 15, 2009

Obama's Being Slick and Disingenuous on Healthcare

From Obama:

"When you hear the naysayers claim that I'm trying to bring about government-run health care, know this -- they are not telling the truth," Mr. Obama said in remarks prepared for delivery to the AMA. "What I am trying to do -- and what a public option will help do -- is put affordable health care within reach for millions of Americans."

In one sense what he's trying to do is a modest step towards insuring those who are uninsured. He is not, right off the bat, dismantling private health insurance plans through employers or for the self-insured. So, in the very short term he can claim he is not "socializing medicine." However, if you like to think strategically, it is easy to see why this is a first step towards a socialized, government-run healthcare system.

Companies incur a significant cost for providing health insurance to individuals. It is an operating cost on their balance sheets. Every company I have worked for has sent me an annual statement of my total compensation that includes my salary and the cost of my health insurance, which is one of my benefits. Depending on how a government, public option, health program is priced, you could easily see why there is an incentive for my employer to move me towards it in the longer term. If my company can move the cost of my benefit to a government run program, it would be in there interest to do so. At that point there is a competition between my private plan and the government plan. If the government plan is cheaper it makes sense to do so. It depends on what it costs for my company to do so. If the government plan is a "freebie" and there is no cost for my company to adopt it, they will. And I will be on the government dole for my health insurance.

In addition, if the government plan offers lower quality service and charges less, if anything to me and my employer, my private plan will follow suit. My company may still provide a private option but it will cost me much more to purchase it for my healthcare needs. I will likely see my premiums go much higher depending on how the tax is treated. It will be very difficult for any private plan to compete against a government sponsored program that has deep pockets funded by taxpayer dollars in the long term.

The argument that this could cut costs overall is ludicrous. Adding millions of people to the rolls combined with an aging population and opening up the pool of people by almost 50 million with minimal to no deductions and copays cannot possibly cut costs. Nobody can seriously believe that the government option could be more effectively administered. Medicare and Medicaid are two case studies indicating it is not cost effective. The only way to cut costs is to slash services and reimburesments to massive degrees. This means waiting for or just plain foregoing X-rays, needed prescription drugs, and other things. To say that we will all become healthier because of an emphasis on prevention is incredibly naive. To say that electronic record keeping will save enough to pay for it also defies credibility.

The only way to seriously cut costs and insure more people is to incentivize private companies to do so and engage competition and eliminate many needless regulations that insurance companies have to currently comply with that make up a relatively high proportion of administrative costs in private health insurance plans. The other way is to have pro-growth policies that help people to work for companies that provide health insurance. The fact that Republicans did not seriously move in this direction is one of their major failures during the past 8 years. They could have injected better market based healthcare plans to help cover the uninsured beyond simple medical savings accounts. They didn't and we're about to pay a steep price for their failure to seriously address the issue when they had the chance.

So when Obama says that this is not a government-run healthcare plan, he is either not thinking ahead about how employers and individuals are likely to react given the cost incentives discussed above -or- he is being slick, disingenuous, and plainly dishonest. You decide.

National Health Insurance: Are Doctors Insane?

Every so often I see a poll that amazes me... but probably shouldn't. Today's poll was from a University of Indiana professor cited in a news article stating that 59 percent of doctors favor government legislation to establish national health insurance.

I am constantly amazed by the lack of ability for smart people to think 2, 3, or 4 steps ahead in terms of the impact a given policy is likely to have on them and on their profession generally. For doctors, the impact of a nationalized health plan that Obama is taking the first small step towards will mean even lower payments and reimbursements and will result in them providing even less personal care to their patients. Doctors offices will become even more like restaurants where the goal is to get'em in and get'em out as soon as possible to make as much money as possible given the constraints of this new system. It's already somewhat bad. This will make that even worse.

I don't seem to think doctors recognize that when Obama talks about cutting costs he means cutting payments to hospitals, and cutting medicare and medicaid reimbursements, and ultimately to the doctors. He can and has said that he is not going to cut payments to doctors, but, again thinking a few steps ahead, how can hospital payments be reduced and medicare reimbursements be reduced and yet doctors remain unaffected? Now you might say that doctors make too much anyway so who cares? But when the doctors themselves don't see where this is going, it's a bit surprising. Doctors are altruistic in differing degrees. Maybe some see themselves as noble souls who don't care about a reasonably high paycheck even after all the effort expended to earn the title of doctor. But undoubtedly this will affect many, if not all, who will give up dealing with a new government bureaucracy and just enter into a specialized cash-for-service practices outside the system. This will also probably reduce the number of hihgly qualified doctors in the long-term. This will have a negative impact especially in rural areas. The way around this is to open up medical schools to more students who are less qualified. This may not be a great idea.

Overall, there are free market alternatives. It's not reasonable to believe that the government is the only serious option in tackling the almost 50M people who are uninsured. I will say that Republicans deserve a lot of blame for not seriously addressing this when they were in power. This reinforces the lesson that to fail to use your authority in beneficial ways when you have the opportunity is a tragedy and a failure that we all pay for. We are about to begin to pay for it now that the naive and idealistic kiddies are back in charge. Once we start going down this road it's hard to turn it back. The notion that government is going to be a competitor and that this will actually increase health insurance competition is completely absurd. For more info on that line of argument:

Saturday, June 13, 2009

Some Consequences of Chrysler's Bailout

It seems the decision to totally disregard creditors during the Chrysler debacle, which gave the politically connected UAW an owership stake but left debt holders holding the bag, is having consequences for bankruptcies in other industries.
This a great excerpt from the article regarding the potential bankruptcy of an NHL hockey team in the Wall Street Journal:
"Should the judge approve that move and allow the Coyotes to be sold quickly, as Chrysler was, it could put some creditors out in the cold, leaving the NHL and other investors without the kind of input typically afforded by bankruptcy law.
"Bankruptcy and financial professionals said such scenarios, if successful, could make investors demand higher interest rates on debt amid uncertainty over how they might fare should the firm encounter financial difficulties. "The concern is that you have thousands of lenders, hedge funds, insurance companies who model their investments on rules and laws," said Stephen Lerner, a lawyer for a committee of Chrysler dealers. "How do these folks make investment decisions when they're faced with bankruptcy courts that appear to disregard the rules?"

Indeed. When a President, his administration, and judges disregard rules about something as basic and well established in legal precedent as banruptcy proceedings, it has profound consequences. The justification we've heard from President Obama for doing what is expedient is that we are in a crisis and need to bend on some of our principles. But it is precisely when there is a crisis, when you are put to the test, that you have to stand most firmly on principles and uphold the rule of law. If you can't do it when it's hard, what good is it? To do away with principles and the decades of U.S. legal precedent that protects investors in a corporate bonds, while rewarding politically influential union supporters with a major ownership stake, is horrendous. Why would you invest in corporate bonds like this from now on? Would you buy Ford bonds? What about GM again knowing that if things go south you probably won't get much of your money back?

This is a far cry from Obama's campaign platitudes that he would restore integrity and usher in a new era of hope that things will now be different that Obama espoused during his campaign. To disregard a well established body of laws that have been built up over decades is to damage the very rule of law that is so essential for any great nation to stand. One can argue that these sorts of things are even worse than politics as usual. It's one thing to screw up a policy. But now they're interfering and screwing up basic business operations?

Thursday, June 11, 2009

Interest Rates Are a-Risen

Yep, that'll happen when a government borrows excessively.

Yesterday my post was on T-Bond rates. Today's post links to a story that says mortgage rates are going up. Ultimately, government borrowing and spending crowds out private investment by raising interest rates and taking in money from lenders that otherwise may have gone into rebuilding the private sector of the economy. They are lending money to the government rather than to private entities via banks and other outlets that lend capital to wannabe "bidness" investors.

I learned that early on in my economics education. Seems the textbooks were right. Can somebody lend President Obama N. Gregory Mankiw's macroeconomics undergraduate textbook?

Wednesday, June 10, 2009

The Economy: A Picture Tells a Thousand Words

The following chart portrays the yield on 10-year treasury notes during the last 6 months. Notice that the rate has gone up from about 2% to 4%. And, it keeps rising.

Why is this important? Because it is the rate the Treasury has to offer to folks from China, Saudi Princes, and a few good Americans to lend to our government in order to fund the massive increase in spending that Obama has proposed since January. This rate is related to other interest rates in the economy including mortgages, business loans, credit cards, and most other loans that charge an interest rate. For example, in the last month 30-year mortgage interest rates, which Americans who want to buy homes have to pay, have also gone up. Not good for an economy that needs to see a fix in its housing mess in order to recover. It's also not good for business investors who want to take a loan to start a business, hire new employees, or buy new equipment. The irony is that the proposals intended for "recovery" are likely to start hindering a real recovery as borrowing costs increase.

A picture is just a picture. But this demonstrates that no country can borrow and spend indefinitely, even the great United States. The bill for these policies is coming due.

"I Don't Know Anything About Cars"

So says the new GM Chairman Mr. Ed Whitacre.

I am feeling pretty good about this government ownership thing. Especially because he said he'd learn. How complex can running a multi-billion dollar, multi-national car company be? There's nothing unique about the auto industry. A business is a business, parts is parts, and all you gotta do is have enough sales to cover your costs with a lil' bit left over. Yep. It's just that easy.

The Age of Czars

I want to be a czar of something. Maybe I'll become Dad Czar, Lawn Maintenance Czar, or Cigar Czar.

Obama is appointing yet another "czar" called a pay czar to monitor how firms receiving government cash pay their executives and their employees. We already have a car czar, energy czar, health czar, urban czar, TARP czar, drug czar, terrorism czar, faith-based czar, and many more. My favorite czar is the stimulus accountability czar.

Czars are not congressionally appointed and they are not accountable to anybody other than their boss, President Obama. I know Congress as one of the three branches of government is boring with lots of committees and people who just talk a lot. But there are various committees and congressional members who are supposed to have a major role in these types of czar appointed things. This is really an end run around Congress and a consolidation of executive power by El Presidente. But who really needs the Constitution anymore? It's old, boring, and so yesterday, right? I guess if you want results, you gotta bring in a Czar. Maybe we can give them all big, furry hats like they did in Russian days.

Monday, June 8, 2009

Go Git Them There Shovels

Obama says he's going to deliver 600K new federal "stimulus" jobs.

Maybe it's me, but aren't jobs funded out of borrowed money via the massive deficit a bit of hocus pocus? A more fundamental question to consider is how jobs are created and sustained in the first place? Why do people have the jobs they have? Why do people pay others to perform a given task over a long time? Usually, people learn a skill that is useful to somebody in some industry. An employer makes a decision on who to hire depending on how rare the skill is or how much money the employer will make by paying for your skill. Your pay is set by these things as well as your competition and what people are willing to accept in compensation. If somebody has a rare skill that others are willing to pay a lot of money for, you will have a high paying job. If it is a skill that many have and there's not a ton of demand for it, you will find yourself with a fairly low paying job. Of course, the best opportunity to earn a high income is as an entrepreneur.

So how will having the federales hire people in the short term produce jobs that will be durable and lasting given the realities of the job market? The answer is that it won't help people long term. The fact is that it drains money from one sector of the economy because it is funded out of debt and ultimately higher taxes down the road and gives it to another to produce these jobs.

Republicans should be against this. They should advocate for small business credits, possibly help entrepreneurs get off the ground where appropriate, and maybe propose expanded opportunities for vocational and community college training so people can acquire the skills they need for a competitive job market. This repetitive nonsense from the Obama administration is like a circus akin to the Roman emperors putting on shows at the Coliseum to distract the mob from what's really happening.

Sunday, June 7, 2009

Is The Recession About To End? Part II

Here is a fascinating link explaining the birth-death rate adjustment in May that lead to very understated unemployment numbers.

I can't help but wonder if the Obama administration is behind this? Are they now politicizing government bureaucracies to make the job market seem better than it is? This is a conspiracy theorist's dream. I'd be surprised but you never know.

Is The Recession About To End?

Several respectable bloggers and economists are concluding that the economy is coming around because of indications in various payroll and jobs data. Included, is this guy:, this guy:, and these guys:,000_in_may_smashing_consensus_expectations

All of them are folks I read. Nonetheless, I maintain that we are not at the beginning of a V-shaped recovery yet. I don't predict a V-shaped recovery. This is a scenario where the economy, after having gone down, goes back up. I predict an L-shape which is that the economy will stop going down but, rather than come roaring back, stays at a relatively low point for a long time to come. Anyway, it's on record.

I have absolutely no doubt that the unemployment rate will top 10% by the end of the summer despite predictions by some that job gains will start by the end of the summer. I also believe there's something fishy about the 345K job loss numbers. The BLS did something with birth-death rates in the calculation that skewed this number some how. The summer may give a break as people and businesses enjoy vacation and spend a little and maybe stop firing people in droves. But the continued uncertainty combined with auto job losses and the crazy unintended consequences of our current fiscal policy have me very nervous. Americans, true to form, are consuming more than they have on borrowed money. There was a rise in hotel and bar jobs. So people are confident using the credit cards again despite not having a job. I have friends who are doing this and I have gotten a little sloppy as well during the last few weeks by eating out a little more than I probably should. It still doesn't mean a long term sustainable recovery is underway.

Again, I hate to be such a negative voice about this. It gives me no joy. I just see no reason to be blindly optimistic or draw correlations in government economic data to prove a point. I think a lot of times professional economists lose the forest from the data trees. They could probably benefit by talking to friends, business leaders, and random people in their neighborhoods a little more. Government economic data doesn't give you the complete story.

Friday, June 5, 2009

Why the Reduction in the Pace of New Job Loss is Worse News Than Reported

Today a report came out that the total number of jobs lost was only 345,ooo during the month of May. This was down from over 500K jobs lost in April. What is really interesting is that the unemployment rate went up fairly significant to 9.4% from 8.9%, which is a .5% increase. Whereas in the previous month it went up from 8.5% to 8.9%, or .4% even though about 504,000 jobs were lost. Why?

The following link is helpful in understanding it.
The link is to the Bureau of Labor Statistics who is in charge of measuring unemployment from month to month. What you will notice there is that under household data the number of employed people went down by an additional 437K. The total number of unemployed people in the month of May actually went up dramatically by 787K. It's just that since there were 437K less people employed as part of the "Civilian Labor Force" in the line above it, these are not counted in the net number of the 345K who are newly unemployed.

What this may mean is that people have stopped looking for new jobs. By the BLS economic data definitions for this category, once a person stops looking for a job because they are discouraged and can't find one, they are no longer considered part of the "Civilian Labor Force". Thus, they are no longer counted as unemployed. Although, as they may tell you, they are still unemployed indeed. On the other hand, the civilian labor force in total went up. The other interesting news is that average weekly hours worked went down. This means that companies are not laying people off but rather requesting they work less hours. It's a good way to offset firing people. But it is a bad indicator because these companies may lay people off down the road rather than just scale back their hours as they are currently doing. But how long can that go on?

The way the media reports these numbers as though this is good news is incredibly misleading. You could actually make the argument that based on that table in the link, that May was maybe the worst month of the year - at least since March. That little slight of hand with the drop off of the 437K illustrates this. It's why the rate went up relatively higher despite the relatively lower total number of unemployed who were counted.

I know Americans are optimistic by nature. But burying your head in the sand is never a way to get out of hard times. I think the only option for unemployed people at this point is to look towards entrepreurial ventures rather than trying to get a job that's just not out there. Starting a business is probably your best bet other than just a temp job. Americans need to call their politicians out, especially President Obama, and put pressure on them to rethink the policies they are enacting. The GOP needs to be advocating and emphasizing new businesses rather than government "stimulus" spending to tide us over. They need to talk up policies designed to spur America's creativity. They need to focus on specific pro-business policies. "Green jobs" don't get that because they are not a panacea.

Unless there is a dramatic course reversal soon, we will remain in serious ... [fill in the blank].

Wednesday, June 3, 2009

Dick Morris the Economic Prognosticator

I don't know what has gotten into Dick Morris over the last few years. But whatever he's drinking it's good stuff. Mr. Morris was the author of Bill Clinton's political triangulation strategy when he was then President Clinton's pollster/strategist. He was a swarmy sort of guy who embodied all that was wrong with Bill Clinton's essentially poll driven policies during the 1990's. His political career ended in the late 1990's when he was the topic of tabloid gossip for being caught in a hotel room with a prostitute. Anyway, I have to say he's been absolutely right on about the direction of the economy and the consequences of Obanamics. He describes it well:

Monday, June 1, 2009

Some Economic Indicators of Interest

The economic news and market data has been interesting in the last few days. Treasury yields are going up, and the dollar is weakening against other currencies. I've also noticed that mortgage rates are inching up, as are gas prices at my pump and oil per barrel in the markets. These are bad signs that inflation may be rising. On the other hand, personal income rose but personal consumption fell. At least savings went up. Corporate profits went up and certain indexes on manufacturing and construction went up. Although overall raw manufacturing numbers went down. Manufacturing, construction, inventory holdings, and things such as that are considered economic leading indicators.

The raw numbers are still not good indicating the patient still has cancer but the cancer hasn't spread as far and as fast as last month. But we haven't reversed the cancer.

It's a challenging puzzle. What it all means is that things are not deteriorating as fast as they were. But the costs of Obama's reckless fiscal and monetary policies are starting to be borne. With a sane policy you would have a better opportunity to let the markets work, prices adjust, and workers and industries could adjust as they enter new industries and embark on entrepreneurial ventures that create new jobs and better value than the old industry. With Obamanomics, we will likely see inflation due to the print money policy of the Fed and the porkulus dollars slowly working their way through the economy.

The rub with these cartoonish policies is that we now have a catch-22.
- If the economy does come back in terms of employment and moderate growth it will come with massive inflation and higher interest rates. This would than plunge us into a new recession as we fight inflation. This would also be like taking a chainsaw to the housing market and to new business investment as borrowers face higher interest rate costs.
-If the economy doesn't come back we will have slow growth, trillions wasted, but, on the good side I guess, only low to moderate inflation because the new trillions in circulation won't go to rampant consumption that would drive up prices. People would save and business would have keep prices stable.

All in all, I tend to believe that we will not have rampant inflation because I still don't believe that the economy will grow so pressure on prices to stay low will remain stable. But we will see. Over the next two years, I predict that we will have wasted trillions, seen little growth, and we will see moderately higher inflation and higher interest rates. Bad policies don't come cheap and behind each of these numbers there is a human cost. The Obama presidency and the specific policies he has enacted, after all the Bush blaming is done, are the real tragedy of the Obama hope and change experiment. While the Obama show entertains, the soap opera is shaping up to end on a sour note. Only 3 years and 8 months to go!

Power to the People, We Own GM!

Woohoo. Prez Obama said today that he will order the Federal Government to order a fleet of new GM cars. Normally, there is a competitive bidding process for these things where companies that supply the federal government have to respond to a request for proposal and submit an offer along with others. No longer. With a wave of his hand Obama has done away with trivialities.

This really stink for Ford by the way. They are American, last I checked, and now they have to compete against a subsidized company even as they're suffering in this economy like everybody else. Well, there's always unintended consequences to socialism. But, as the great Russian Lenin once said before he rounded up and executed the middle class in Moscow, if you want to make an omelet you gotta break some eggs.