http://online.wsj.com/article/SB10001424052702304019404577418311631098508.html?mod=WSJ_Opinion_LEADTop
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"For the Flower to blossom, you need the right soil as well as the right seed. The same is true to cultivate good thinking." (William Bernbach)
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I'm continually annoyed with economists who call what we're in right now a "recovery." Just because it's not a recession doesn't mean it's a recovery. So, I'm going to call it a "non-recovery."
Harvey Golub has done a nice job of defining the non-recovery: the Minneapolis Fed tracks the economic performance of each recovery and compares gross domestic product (GDP) growth and job growth, "... the two most important indicators of economic performance."
So, over the last 60 years, there have been 11 recessions and 11 recoveries. This non-recovery is at the bottom of all 11. Cumulative non-farm job growth is just 1.9% 34 months into the post-recession period: that's the 9th worst of the 11 and well below the average job growth of 6.5%. Cumulative GDP growth is just 6.8% 11 quarters into the non-recovery, less than half the average (15.2%) and the "WORST" of all 11.
So, what did all that "stimulus" money accomplish? I should probably separate my use of the term "money." The "monetary policy" of the Fed has resulted in low interest rates - almost zero for the past 3 years. The thought here was to increase borrowing by individuals and businesses, generating "increased economic activity." It's positive effects in this non-recovery have mainly been to help the government borrow more cheaply, large banks recapitalize more quickly, and homeowners refinance at low rates. Quoting Golub: "Uncertainty regarding ObamaCare and higher taxes on businesses and individuals has discouraged the type of borrowing and lending that low rates generally encourage. Near-zero interest rates have also resulted in historically low yields on savings and encouraged riskier investments. In effect, we have subsidized increased spending by penalizing savings."
"Fiscal policy which, according to Golub, is under the control of the President and his party, increased expenditures by roughly $700 billion per year since 2008 and launched a spending package of about $800 billion (along with various temporary tax deductions), all of which resulted in an increase in national debt of over $5 trillion. Golub again: "In other words, we borrowed $5 trillion, for which we will pay interest for who knows how long, in order to stimulate the economy now."
(Here, Golub is basically defining what both Warren Buffet and Paul Krugman said back in 2008 wasn't enough. Alan Blinder (Princeton University economist and former Fed vice chairman) has recently joined that view. )
So, what did we get? Golub's perspective is that the money was spent poorly and we will get very little future value from it. I'm shocked, shocked! "Billions were spent to reward favored constituencies like government employees and the auto industry. Billions more were spent on training programs that don't work." Not enough went to infrastructure or other assets that will help the U.S. create wealth over time.
If you don't know what the regulatory environment is going to be, or, if you suspect it's going to be negative toward the business community, do you invest? Did the National Labor Relations Board recently tell Boeing that they could NOT build the new plant they had already built in South Carolina to double their production of new 787s? That's a government agency, put in place to protect the rights on union workers so they won't get taken advantage of, telling a state that they can't approve a new factory coming in to add a large number of jobs and capital investment to it's economy. I could go on.
Bottom line. Golub has a point: "The massive costs of the stimulus have been wasted because of the heavy counterweight put on the economy by the administration's anti-business and pro-redistribution policies."
Wednesday, May 23, 2012
Friday, May 11, 2012
Easy Useless Economics
http://www.nytimes.com/2012/05/11/opinion/krugman-easy-useless-economics.html?hp#
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"A conclusion is the place where you get tired of thinking." (Edward DeBono)
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I believe the title of this post helps to describe what's wrong with economics. What I find especially nice about it is that it's the "title" of Paul Krugman's most recent blog post. Here we have a Nobel Prize winner in economics accusing his own profession of ineptitude.
Krugman's post begins in a very unique way which I won't spoil for those of you who might want to read it. Ultimately, he segues into the WW II analogy which many of us are fond of using which basically suggests that the massive military build-up for war beginning in 1939 in the U.S. produced, by 1941, a 20% increase in non-farm employment. In today's numbers, 20% would be 26 million jobs.
Since the onset of the worldwide financial crisis, and consistently thru the recession that officially began in the U.S. in December, 2007, both Krugman and Warren Buffet have said that a massive stimulus is needed. They have both continued to say that the U.S. did not provide enough stimulus.
With 12.7 to 13.7 million people "officially" unemployed, we have "...authoritative-sounding figures [that] insist that our problems are 'structural,' that they can't be fixed quickly." Krugman defines "structural unemployment" as involving the claim that American workers are stuck in the wrong industries or with the wrong skills. While certainly some of these claims can be made sector by sector, Krugman's point is that the current depression-like situation is so massive as to disprove the "structuralists" de facto.
Krugman's point is that the U.S. suffers from an overall lack of sufficient demand. This is the kind of "lack" that could and should be cured quickly with government programs designed to boost spending (the definition of what that spending is has created debate but I'll go with Mark Zandi's recommendations to Congress that involved infrastructure spending - roads/bridges - where the "jobs multiple" is the highest). I would quickly reference here China's legendary economist Justin Yifu Lin, currently chief economist of the World Bank, who advocates a global infrastructure initiative where both developed and developing countries could benefit from public-private partnerships (PPPs) which he analogizes as similar to what Eisenhower did to create the U.S. interstate highway system (see "Bridges to Somewhere," Justin Yifu Lin, "Foreign Policy," Fall, 2011).
A last great quote from Krugman: "Every time some self-important politician or pundit starts going on about how deficits are a burden on the next generation, remember that the biggest problem facing young Americans today isn't the future burden of debt - a burden, by the way, that premature spending cuts probably make worse, not better. It is, rather, the lack of jobs, which is preventing many graduates from getting started on their working lives."
I ask myself where the jobs will come from. Krugman and others have answers.
***************
"A conclusion is the place where you get tired of thinking." (Edward DeBono)
***************
I believe the title of this post helps to describe what's wrong with economics. What I find especially nice about it is that it's the "title" of Paul Krugman's most recent blog post. Here we have a Nobel Prize winner in economics accusing his own profession of ineptitude.
Krugman's post begins in a very unique way which I won't spoil for those of you who might want to read it. Ultimately, he segues into the WW II analogy which many of us are fond of using which basically suggests that the massive military build-up for war beginning in 1939 in the U.S. produced, by 1941, a 20% increase in non-farm employment. In today's numbers, 20% would be 26 million jobs.
Since the onset of the worldwide financial crisis, and consistently thru the recession that officially began in the U.S. in December, 2007, both Krugman and Warren Buffet have said that a massive stimulus is needed. They have both continued to say that the U.S. did not provide enough stimulus.
With 12.7 to 13.7 million people "officially" unemployed, we have "...authoritative-sounding figures [that] insist that our problems are 'structural,' that they can't be fixed quickly." Krugman defines "structural unemployment" as involving the claim that American workers are stuck in the wrong industries or with the wrong skills. While certainly some of these claims can be made sector by sector, Krugman's point is that the current depression-like situation is so massive as to disprove the "structuralists" de facto.
Krugman's point is that the U.S. suffers from an overall lack of sufficient demand. This is the kind of "lack" that could and should be cured quickly with government programs designed to boost spending (the definition of what that spending is has created debate but I'll go with Mark Zandi's recommendations to Congress that involved infrastructure spending - roads/bridges - where the "jobs multiple" is the highest). I would quickly reference here China's legendary economist Justin Yifu Lin, currently chief economist of the World Bank, who advocates a global infrastructure initiative where both developed and developing countries could benefit from public-private partnerships (PPPs) which he analogizes as similar to what Eisenhower did to create the U.S. interstate highway system (see "Bridges to Somewhere," Justin Yifu Lin, "Foreign Policy," Fall, 2011).
A last great quote from Krugman: "Every time some self-important politician or pundit starts going on about how deficits are a burden on the next generation, remember that the biggest problem facing young Americans today isn't the future burden of debt - a burden, by the way, that premature spending cuts probably make worse, not better. It is, rather, the lack of jobs, which is preventing many graduates from getting started on their working lives."
I ask myself where the jobs will come from. Krugman and others have answers.
Wednesday, May 9, 2012
Stabilizing Housing Market
http://www.nytimes.com/2012/05/10/business/fannie-mae-profit-signals-a-stabilizing-housing-market.html?_r=1&ref=business
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"I'm not an answering machine, I'm a questioning machine. If we have all the answers, how come we're in such a mess?" (Douglas Cardinal)
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According to Annie Lowrey,"Across the country, there are signs that the housing market is stabilizing. Home prices have continued to fall, but at a much slower pace. More Americans are buying houses than they were a year ago. Housing starts have climbed more than 10% in the last year, as home builders pick up construction of new homes and apartment buildings. Fannie and Freddie, which own or guarantee millions of home loans, lose money when borrowers default."
Locally, the rebound in the North Texas housing market continued in April with an 11% rise in pre-owned home sales over April, 2011 according to numbers released Tuesday from the Real Estate Center at Texas A&M. And, median home sale PRICES were up 9% from a year earlier.
That's the tenth month in a row that home sales were higher than in the same period of the previous year.
This has to connect back to "jobs." According to Richard Fisher, president of the Federal Reserve Bank of Dallas, as of March, the DFW metroplex had recovered about 99% of the jobs lost to the recession.
Using a slightly different methodology, the U.S. Bureau of Labor Statistics (BLS) had DFW still missing 10,100 jobs as of March. Of the 12 major metro areas tracked by the BLS, only Houston and Washington, D.C. had surpassed their past jobs peaks as of March. DFW, with a 94% recovery rate, is the closest to full recovery among the remaining 10. The next closest is Boston with a recovery rate of 69%.
Other cities in Texas have already passed their pre-recession peaks. Austin is already 4% ahead, and Houston is 34% ahead. DFW has a higher percentage of finance and insurance companies than other major Texas cities, and those two sectors were hit especially hard during the downturn.
Back in the DFW housing arena, a tighter inventory of homes listed for sale in 2012 is also causing prices to rise. In April, there were 24% fewer single-family homes for sale. And, there was only a 5.5 month supply of houses on the market. Before the recession, most economists were in agreement that a 6 month supply of homes was the norm for any housing market.
Another positive sign is job postings. The Labor Department said yesterday that U.S. companies in March posted the highest number of job openings in nearly 4 years. That would be the most since July, 2008. If we use the low number of all people unemployed as of March, 12.7 million (some people are still using 13.7 million), that means an average of 3.4 people competed for each open job. While that's far better than the nearly 7-to-1 ratio when the recession ended, in a healthy job market, the ratio would be around 2-to-1.
So, there are some positive indicators.
***************
"I'm not an answering machine, I'm a questioning machine. If we have all the answers, how come we're in such a mess?" (Douglas Cardinal)
***************
According to Annie Lowrey,"Across the country, there are signs that the housing market is stabilizing. Home prices have continued to fall, but at a much slower pace. More Americans are buying houses than they were a year ago. Housing starts have climbed more than 10% in the last year, as home builders pick up construction of new homes and apartment buildings. Fannie and Freddie, which own or guarantee millions of home loans, lose money when borrowers default."
Locally, the rebound in the North Texas housing market continued in April with an 11% rise in pre-owned home sales over April, 2011 according to numbers released Tuesday from the Real Estate Center at Texas A&M. And, median home sale PRICES were up 9% from a year earlier.
That's the tenth month in a row that home sales were higher than in the same period of the previous year.
This has to connect back to "jobs." According to Richard Fisher, president of the Federal Reserve Bank of Dallas, as of March, the DFW metroplex had recovered about 99% of the jobs lost to the recession.
Using a slightly different methodology, the U.S. Bureau of Labor Statistics (BLS) had DFW still missing 10,100 jobs as of March. Of the 12 major metro areas tracked by the BLS, only Houston and Washington, D.C. had surpassed their past jobs peaks as of March. DFW, with a 94% recovery rate, is the closest to full recovery among the remaining 10. The next closest is Boston with a recovery rate of 69%.
Other cities in Texas have already passed their pre-recession peaks. Austin is already 4% ahead, and Houston is 34% ahead. DFW has a higher percentage of finance and insurance companies than other major Texas cities, and those two sectors were hit especially hard during the downturn.
Back in the DFW housing arena, a tighter inventory of homes listed for sale in 2012 is also causing prices to rise. In April, there were 24% fewer single-family homes for sale. And, there was only a 5.5 month supply of houses on the market. Before the recession, most economists were in agreement that a 6 month supply of homes was the norm for any housing market.
Another positive sign is job postings. The Labor Department said yesterday that U.S. companies in March posted the highest number of job openings in nearly 4 years. That would be the most since July, 2008. If we use the low number of all people unemployed as of March, 12.7 million (some people are still using 13.7 million), that means an average of 3.4 people competed for each open job. While that's far better than the nearly 7-to-1 ratio when the recession ended, in a healthy job market, the ratio would be around 2-to-1.
So, there are some positive indicators.
Best Cities For Job Growth
http://www.newgeography.com/best-cities-job-growth-2012
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"Ideas have a short shelf life. You must act on them before the expiration date." (John C. Maxwell)
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Correlating the data from this year's edition of Forbes' Best Cities For Jobs survey, compiled by Pepperdine University's Michael Shires, found that small midsized metropolitan areas, with populations of 1 million or less, accounted for 27 of the 30 urban regions in the U.S. that are adding jobs at the fastest rate.
According to Wendell Cox, metropolitan areas with less than 1 million people accounted for 60% of urban growth over the last 10 years. Essentially, more Americans are moving to smaller regions than to larger ones. The trend toward smaller communities is likely to continue for several reasons: for one thing, new telecommunications technology serves to even the playing field for companies in smaller cities. You can now operate a sophisticated global business from Fargo, N.D., or Shreveport, La., in ways not possible 20 years ago.
Another reason for the trend is the predilections of two key expanding demographic groups: boomers and their offspring, the millennials. Aging boomers are NOT, in large part, hoping for the dense city life, as is often claimed. If they choose to move, they tend toward less dense and even rural areas. Young families and many better-educated workers also show signs of moving to less dense and affordable places.
A recent McKinsey study found that "middleweight" cities, many of them well under a million, have already started taking a larger percentage of the world's urban growth. McKinsey suggests that the notion that megacities will dominate the urban future constitutes "a common misconception."
My advice has always been that best search for job opportunities is to start by "sectorizing:" looking at the best business areas that continue to grow right thru recessions (health care, medical insurance, etc.). Add to that the "best cities for job growth." Midland/Odessa, Texas. Corpus Christi, Texas. San Angelo, Texas. These are cities that are growing again because of technological innovations that make events like the "shale boom" possible.
Following trends like this is like following job opportunities.
***************
"Ideas have a short shelf life. You must act on them before the expiration date." (John C. Maxwell)
***************
Correlating the data from this year's edition of Forbes' Best Cities For Jobs survey, compiled by Pepperdine University's Michael Shires, found that small midsized metropolitan areas, with populations of 1 million or less, accounted for 27 of the 30 urban regions in the U.S. that are adding jobs at the fastest rate.
According to Wendell Cox, metropolitan areas with less than 1 million people accounted for 60% of urban growth over the last 10 years. Essentially, more Americans are moving to smaller regions than to larger ones. The trend toward smaller communities is likely to continue for several reasons: for one thing, new telecommunications technology serves to even the playing field for companies in smaller cities. You can now operate a sophisticated global business from Fargo, N.D., or Shreveport, La., in ways not possible 20 years ago.
Another reason for the trend is the predilections of two key expanding demographic groups: boomers and their offspring, the millennials. Aging boomers are NOT, in large part, hoping for the dense city life, as is often claimed. If they choose to move, they tend toward less dense and even rural areas. Young families and many better-educated workers also show signs of moving to less dense and affordable places.
A recent McKinsey study found that "middleweight" cities, many of them well under a million, have already started taking a larger percentage of the world's urban growth. McKinsey suggests that the notion that megacities will dominate the urban future constitutes "a common misconception."
My advice has always been that best search for job opportunities is to start by "sectorizing:" looking at the best business areas that continue to grow right thru recessions (health care, medical insurance, etc.). Add to that the "best cities for job growth." Midland/Odessa, Texas. Corpus Christi, Texas. San Angelo, Texas. These are cities that are growing again because of technological innovations that make events like the "shale boom" possible.
Following trends like this is like following job opportunities.
Monday, May 7, 2012
Educational Volunteers vs Unions
http://www.city-journal.org/2012/cjc0504ppkk.html
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"The truth will set you free - but first it will make you angry." (John C. Maxwell)
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My mother taught 5th grade in the Huntington (NY) Union Free School District for 42 years until she retired. I never paid any attention to what the title of the "District" was ("Union Free"). But, today I am.
In what can't possibly be true, the "City Journal" reports that volunteers in the Culver City, California Unified School District are being bullied about paying union dues. In this West Los Angeles school district, the Association of Classified Employees (ACE) - a union representing non-teaching school staff - wants to force "...minimally compensated, hard-working volunteers and classroom adjuncts to unionize..." This is happening at the El Marino Language School which is a National Blue Ribbon Award winner.
In 1989, the parents at the El Marino Language School created "Advocates for Language Learning El Marino" (ALLEM), a non-profit organization that raises money to hire part-time, independent adjunct teachers for each classroom. The adjuncts work 1.5 to 3 hours per day, 5 days per week. These adjuncts are not unqualified or untrained amateurs. The money they make is supported by ALLEM's bake sales, silent auctions, pledges, etc.
The union argues (Really!) that the adjunct program is unfair to other schools that lack a similar level of parent and community involvement. Wait, there's more! The union proposes that ALLEM continue its fundraising to support higher-cost, unionized adjuncts. Here's an actual quote from the union president: "We decided as an executive board for the union that we needed to negotiate that they (the adjuncts) be brought into our unit. It's not a personal thing, it's a negotiations thing."
A spokesman for ALLEM said the group would need to raise 40% more money per year to pay for unionized employees.
The ACE's next steps include filing a grievance with the district, followed by an appeal to the union-aligned Public Employment Relations Board. According to Pete Peterson, the executive director of the Davenport Institute for Public Engagement at Pepperdine's School of Public Policy, "The union push to extort dues out of parent-funded workers is not limited to El Marino."
There are those who feel that California will never come back to what it once was as a state (or state of mind): expert economists and demographers come to mind. California citizens appear to be voting with their feet on California viability by leaving the state faster than new citizens can arrive.
If you've read this, pass the information about this situation on. I have but a small voice but, perhaps many voices can focus attention on this kind of blatant selfishness and stupidity.
My mother's school district was ultimately unionized in spite of her refusal to participate in that effort. She didn't think education should be unionized.
There are many who believe that the key to future GDP growth and/or productivity improvement in the United States is education. Education and innovation work hand-in-hand.
Could it be that situations like the one described here are what's limiting U.S. educational achievement vs other countries?
***************
"The truth will set you free - but first it will make you angry." (John C. Maxwell)
***************
My mother taught 5th grade in the Huntington (NY) Union Free School District for 42 years until she retired. I never paid any attention to what the title of the "District" was ("Union Free"). But, today I am.
In what can't possibly be true, the "City Journal" reports that volunteers in the Culver City, California Unified School District are being bullied about paying union dues. In this West Los Angeles school district, the Association of Classified Employees (ACE) - a union representing non-teaching school staff - wants to force "...minimally compensated, hard-working volunteers and classroom adjuncts to unionize..." This is happening at the El Marino Language School which is a National Blue Ribbon Award winner.
In 1989, the parents at the El Marino Language School created "Advocates for Language Learning El Marino" (ALLEM), a non-profit organization that raises money to hire part-time, independent adjunct teachers for each classroom. The adjuncts work 1.5 to 3 hours per day, 5 days per week. These adjuncts are not unqualified or untrained amateurs. The money they make is supported by ALLEM's bake sales, silent auctions, pledges, etc.
The union argues (Really!) that the adjunct program is unfair to other schools that lack a similar level of parent and community involvement. Wait, there's more! The union proposes that ALLEM continue its fundraising to support higher-cost, unionized adjuncts. Here's an actual quote from the union president: "We decided as an executive board for the union that we needed to negotiate that they (the adjuncts) be brought into our unit. It's not a personal thing, it's a negotiations thing."
A spokesman for ALLEM said the group would need to raise 40% more money per year to pay for unionized employees.
The ACE's next steps include filing a grievance with the district, followed by an appeal to the union-aligned Public Employment Relations Board. According to Pete Peterson, the executive director of the Davenport Institute for Public Engagement at Pepperdine's School of Public Policy, "The union push to extort dues out of parent-funded workers is not limited to El Marino."
There are those who feel that California will never come back to what it once was as a state (or state of mind): expert economists and demographers come to mind. California citizens appear to be voting with their feet on California viability by leaving the state faster than new citizens can arrive.
If you've read this, pass the information about this situation on. I have but a small voice but, perhaps many voices can focus attention on this kind of blatant selfishness and stupidity.
My mother's school district was ultimately unionized in spite of her refusal to participate in that effort. She didn't think education should be unionized.
There are many who believe that the key to future GDP growth and/or productivity improvement in the United States is education. Education and innovation work hand-in-hand.
Could it be that situations like the one described here are what's limiting U.S. educational achievement vs other countries?
Friday, May 4, 2012
Today's Jobs Report
http://economix.blogs.nytimes.com/2012/05/04/where-do-we-go-from-here/?ref=business
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"It is the dull man who is always sure, and the sure man who is always dull." (H.L. Mencken)
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Today's jobs report was weak. For those of us who follow labor markets, it's the lagging indicator that continues to "lag."
Who are the economists that are calling this a "recovery?" It's a recovery because we haven't had two straight quarters of negative GDP growth? How about anemic GDP growth? While this may not be the exact definition of GDP correlated with job growth, it occurs to me that 2.5% GDP growth is the minimum needed to add jobs to the economy. And, roughly 125,000 to 135,000 new jobs are needed each month just to keep up with population growth.
So 115,000 new jobs is probably not the answer.
According to David Leonhardt, we're in store for 175,000 net new jobs per month (on average) in the coming months. According to most major economists, the signals are, at best, mixed.
Economists don't think the 2.2% GDP growth for the first quarter of 2012 means a repeat of a weak 2011. The economy slowed to an annual rate of 0.4% GDP growth in the first quarter of 2011.
On the positive side, unemployment has fallen from 9.1% last August to 8.2% in March. The economy has added 1.9 million jobs in the last year. More hiring is creating more spending, a cycle in which hiring and consumer spending reinforce each other.
With 12.7 million people unemployed, today's economy needs much faster growth to boost hiring. Growth would have to be roughly 4% for a full year to lower the unemployment rate 1 percentage point.
The Fed announced that it will continue to keep interest rates low thru 2014 for a reason.
***************
"It is the dull man who is always sure, and the sure man who is always dull." (H.L. Mencken)
***************
Today's jobs report was weak. For those of us who follow labor markets, it's the lagging indicator that continues to "lag."
Who are the economists that are calling this a "recovery?" It's a recovery because we haven't had two straight quarters of negative GDP growth? How about anemic GDP growth? While this may not be the exact definition of GDP correlated with job growth, it occurs to me that 2.5% GDP growth is the minimum needed to add jobs to the economy. And, roughly 125,000 to 135,000 new jobs are needed each month just to keep up with population growth.
So 115,000 new jobs is probably not the answer.
According to David Leonhardt, we're in store for 175,000 net new jobs per month (on average) in the coming months. According to most major economists, the signals are, at best, mixed.
Economists don't think the 2.2% GDP growth for the first quarter of 2012 means a repeat of a weak 2011. The economy slowed to an annual rate of 0.4% GDP growth in the first quarter of 2011.
On the positive side, unemployment has fallen from 9.1% last August to 8.2% in March. The economy has added 1.9 million jobs in the last year. More hiring is creating more spending, a cycle in which hiring and consumer spending reinforce each other.
With 12.7 million people unemployed, today's economy needs much faster growth to boost hiring. Growth would have to be roughly 4% for a full year to lower the unemployment rate 1 percentage point.
The Fed announced that it will continue to keep interest rates low thru 2014 for a reason.
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