http://economix.blogs.nytimes.com/2013/08/30/the-audacity-of-the-fight-for-higher-wages/?emc=eta1
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"Strive not to be a success, but rather to be of value." (Albert Einstein)
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Jared Bernstein, former chief economist to Vice President Joseph Biden, saw an interesting intersection of two stories this week: first that the banks had an outstanding quarter with profits up 23% (primarily because they had to write off less loan losses), and, second that there were striking fast-food workers calling for an increase in their pay to $15 an hour (the average for these workers is roughly $9 per hour, up from $8.66 in 2009).
Putting this together with an upward revision in second quarter GDP that came out Thursday, corporate profits were at (or near) record highs as a share of national income while compensation "...fell again and is now at the lowest share it has been since the year (he) was born: 1955" caused Bernstein to conclude that something's broken in an economy that serves low wages to significant numbers of adults whose families depend on their earnings.
All this as the Conference Board (a business research group that is closely watched by CEOs) said on Thursday that its index of leading indicators increased .6% last month to a reading of 96. Some of the ten leading indicators that went up were: new orders for consumer goods and materials, new building permits issued, an index of stock prices and an index of consumer expectations.
Are corporate profits up partly at the expense of our lowest paid workers?
Saturday, August 31, 2013
Thursday, August 15, 2013
Justice Department Seeks to Block AMR/US Air Merger
http://www.nytimes.com/2013/08/15/business/justice-dept-alters-view-of-mergers-by-airlines.html?pagewanted=all
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"Management is efficiency in climbing the ladder of success. Leadership determines whether the ladder is leaning against the right wall." (Stephen Covey)
***************
I have to join Bob Crandall (retired CEO of American Airlines) who questions what the people who run our government are thinking. On Tuesday, the Justice department sued to prevent the merger of American Airlines and US Air. According to Justice, the merger will mean less competition and higher prices for consumers.
So, what was this same Justice Department thinking when they evaluated the mergers of Delta and Northwest in 2008 and United and Continental in 2010? According to Crandall, these combinations (between companies that were much more competitive with one another than are American Airlines and US Air) have demonstrated that consolidating companies to build a nationwide service capability, realize economies of scale and reduce excessive competition is a sound strategy.
By allowing those two mergers, the US government has essentially created a "duopoly" with two super majors, the rest of the airlines and Southwest. Allowing this merger (AMR/US Air) would have created three super majors and Southwest (with smaller specialty airlines like Alaska Air which is well run and serves a purpose). Neither American or US Air serves enough US or international cities to compete effectively with United and Delta.
And, let's go to bat for American. I am not a fan of their management but it should be pointed out that, when most of the other airlines went bankrupt after 9/11, American tried to make it without doing that. American tried to keep their maintenance centers here in the US when other airlines went to other countries where it was "cheaper" (I won't comment on what I think the quality of the maintenance done in other countries is.).
And let's talk about "prices" for a moment: the airline industry was "de-regulated" in 1978 because Senator Ted Kennedy introduced a bill that he and his staff felt would lead to his re-election because "de-regulation" would lead to lower air fares. It did. So routes could go to anybody that leased a jet from GE (there are jets no longer in use that leasing companies are and were anxious to reactivate). To make a long story short, prices on many routes fell below what it cost the legacy airlines (like American) to operate. Segway to today: now we charge for "pillows," luggage, changing your flight plans, etc. American couldn't get its costs down or its prices up enough to survive or make a healthy profit.
According to Eduardo Porter, from 1979 to 2009 the airlines lost $59 billion on their domestic operations and $8 billion on their international flights (per Severin Borenstein at the Haas School of Business, UC Berkeley). Since the 1990s, US Air, United, Northwest, Delta, and Continental have all filed for bankruptcy, a couple of them twice.
As Bob Crandall says, if the Justice Department wants to increase competition, drop their suit and clear the way for the creation of a third super major. Justice has it backwards: what they're looking at is an industry trying to survive and a brilliant CEO at US Air (Doug Parker) who, among other accomplishments, got all the unions at American to agree that the best way out of bankruptcy is to merge with US Air. Getting all of the unions at any airline to agree on what time it is constitutes an accomplishment, let alone what Parker did.
I can't imagine the impact on jobs at American if this Justice Department suit drags on. And how about the best managers at both companies running for the exits. The best managers will get other jobs.
For Justice, there's a way to save face: get both airlines to drop a few routes and then withdraw.
***************
"Management is efficiency in climbing the ladder of success. Leadership determines whether the ladder is leaning against the right wall." (Stephen Covey)
***************
I have to join Bob Crandall (retired CEO of American Airlines) who questions what the people who run our government are thinking. On Tuesday, the Justice department sued to prevent the merger of American Airlines and US Air. According to Justice, the merger will mean less competition and higher prices for consumers.
So, what was this same Justice Department thinking when they evaluated the mergers of Delta and Northwest in 2008 and United and Continental in 2010? According to Crandall, these combinations (between companies that were much more competitive with one another than are American Airlines and US Air) have demonstrated that consolidating companies to build a nationwide service capability, realize economies of scale and reduce excessive competition is a sound strategy.
By allowing those two mergers, the US government has essentially created a "duopoly" with two super majors, the rest of the airlines and Southwest. Allowing this merger (AMR/US Air) would have created three super majors and Southwest (with smaller specialty airlines like Alaska Air which is well run and serves a purpose). Neither American or US Air serves enough US or international cities to compete effectively with United and Delta.
And, let's go to bat for American. I am not a fan of their management but it should be pointed out that, when most of the other airlines went bankrupt after 9/11, American tried to make it without doing that. American tried to keep their maintenance centers here in the US when other airlines went to other countries where it was "cheaper" (I won't comment on what I think the quality of the maintenance done in other countries is.).
And let's talk about "prices" for a moment: the airline industry was "de-regulated" in 1978 because Senator Ted Kennedy introduced a bill that he and his staff felt would lead to his re-election because "de-regulation" would lead to lower air fares. It did. So routes could go to anybody that leased a jet from GE (there are jets no longer in use that leasing companies are and were anxious to reactivate). To make a long story short, prices on many routes fell below what it cost the legacy airlines (like American) to operate. Segway to today: now we charge for "pillows," luggage, changing your flight plans, etc. American couldn't get its costs down or its prices up enough to survive or make a healthy profit.
According to Eduardo Porter, from 1979 to 2009 the airlines lost $59 billion on their domestic operations and $8 billion on their international flights (per Severin Borenstein at the Haas School of Business, UC Berkeley). Since the 1990s, US Air, United, Northwest, Delta, and Continental have all filed for bankruptcy, a couple of them twice.
As Bob Crandall says, if the Justice Department wants to increase competition, drop their suit and clear the way for the creation of a third super major. Justice has it backwards: what they're looking at is an industry trying to survive and a brilliant CEO at US Air (Doug Parker) who, among other accomplishments, got all the unions at American to agree that the best way out of bankruptcy is to merge with US Air. Getting all of the unions at any airline to agree on what time it is constitutes an accomplishment, let alone what Parker did.
I can't imagine the impact on jobs at American if this Justice Department suit drags on. And how about the best managers at both companies running for the exits. The best managers will get other jobs.
For Justice, there's a way to save face: get both airlines to drop a few routes and then withdraw.
Thursday, August 8, 2013
Sequestration's Private Sector Impact
http://www.nytimes.com/interactive/2013/06/26/business/Signs-of-the-Sequester.html?emc=eta1
http://economix.blogs.nytimes.com/2013/08/08/more-on-sequestrations-effects-on-the-private-sector/
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"Assumptions are the termites of relationships." (Henry Winkler)
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Catherine Rampell observes in today's nytimes.com that there are private industries whose employment is most dependent on defense funds, and which are therefore most likely to suffer from sequestration. She provides an excellent chart on "Military Dependent Employment by State." The definition of that term refers to the Top 5 Private Industries Whose Employment Is Sensitive To Changes In Defense Spending:
* Facilities Support Services: 51% Share of employment within each
* Ship & Boat Building: 43% industry that is dependent on
* Aerospace Product and Parts Manufacturing: 34% military spending
* Scientific Research & Development Services: 31%
* Navigational, Measuring, Electromedical & Control Instruments Manufacturing: 21%
So, as many have pointed out, while private industry employment is struggling to stay in the black each month (125,000 new jobs each month barely covers new entrants into the workforce), government cutbacks don't just reduce government employment but also reduce "dependent" private employment. It looks like Washington State is ranked first in terms of share of employment reliant on military-dependent industries, followed by New Mexico.
So, here's what I'm seeing: the U.S. did not do enough spending into its own economy as the Great Recession hit (here I am joined by Warren Buffet and Paul Krugman) to come out of it with decent GDP growth. This was followed by "sequestration" that causes weak government spending into an economy where job growth isn't strong enough - there's a "subtraction" where there should be an "addition" each month in direct government and indirect government (private sector jobs dependent on government spending) spending.
There's still time to spend on things like infrastructure (much needed in the U.S.). Get growth back to 4% per year and then gradually reduce government spending where that's needed. At that point, tax receipts are coming in and government employment can be gradually reduced where appropriate (am I repeating?).
Where are the economists?
http://economix.blogs.nytimes.com/2013/08/08/more-on-sequestrations-effects-on-the-private-sector/
***************
"Assumptions are the termites of relationships." (Henry Winkler)
***************
Catherine Rampell observes in today's nytimes.com that there are private industries whose employment is most dependent on defense funds, and which are therefore most likely to suffer from sequestration. She provides an excellent chart on "Military Dependent Employment by State." The definition of that term refers to the Top 5 Private Industries Whose Employment Is Sensitive To Changes In Defense Spending:
* Facilities Support Services: 51% Share of employment within each
* Ship & Boat Building: 43% industry that is dependent on
* Aerospace Product and Parts Manufacturing: 34% military spending
* Scientific Research & Development Services: 31%
* Navigational, Measuring, Electromedical & Control Instruments Manufacturing: 21%
So, as many have pointed out, while private industry employment is struggling to stay in the black each month (125,000 new jobs each month barely covers new entrants into the workforce), government cutbacks don't just reduce government employment but also reduce "dependent" private employment. It looks like Washington State is ranked first in terms of share of employment reliant on military-dependent industries, followed by New Mexico.
So, here's what I'm seeing: the U.S. did not do enough spending into its own economy as the Great Recession hit (here I am joined by Warren Buffet and Paul Krugman) to come out of it with decent GDP growth. This was followed by "sequestration" that causes weak government spending into an economy where job growth isn't strong enough - there's a "subtraction" where there should be an "addition" each month in direct government and indirect government (private sector jobs dependent on government spending) spending.
There's still time to spend on things like infrastructure (much needed in the U.S.). Get growth back to 4% per year and then gradually reduce government spending where that's needed. At that point, tax receipts are coming in and government employment can be gradually reduced where appropriate (am I repeating?).
Where are the economists?
Monday, July 29, 2013
Climbing the Income Ladder
http://www.nytimes.com/2013/07/22/business/in-climbing-income-ladder-location-matters.html?emc=eta1
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"I suppose leadership at one time meant muscles. But today it means getting along with people." (Mahatma Gandhi)
***************
According to a new study that other researchers are calling the most detailed portrait yet of income mobility in the U.S., "where you grow up matters." The study is based on millions of anonymous earnings records and is the first to compare upward mobility across metropolitan areas.
So, climbing the income ladder occurs less often in the Southeast and industrial Midwest with the odds notably low in places like Atlanta and Charlotte.
According to Nathan Hendren, a Harvard economist: "There is tremendous variation across the U.S. in the extent that kids can rise out of poverty." The variation does not come simply from the fact that some areas have higher average incomes: upward mobility rates, Hendren notes, often differ sharply in areas where average income is similar, like Atlanta and Seattle.
The "interactive map" alone is worth the time to look at the study data. A sweep of the color coded U.S. map yields (by county) the chances a child raised in the bottom fifth rose to the top fifth ($70,000 by the age of 30 or $100,000 by the age of 45) in his/her career.
The researches identified four factors that appeared to affect income mobility, including the size and dispersion of the local middles class. All else being equal, upward mobility tended to be higher in metropolitan areas where poor families were dispersed among mixed-income neighborhoods.
In previous studies of mobility, economists have found that a smaller percentage of people escaped childhood poverty in the United States than in several other rich countries including Canada, Australia, France, Germany and Japan. This latest study is consistent with those findings.
For me, I find it especially interesting that children who moved at a young age from a low-mobility area to a high-mobility area did almost as well as those who spent their entire childhoods in a higher-mobility area. But children who moved as teenagers did less well.
For economists, the comparison of metropolitan areas allows researchers to consider local factors that previous studies could not.
Brilliant work!
***************
"I suppose leadership at one time meant muscles. But today it means getting along with people." (Mahatma Gandhi)
***************
According to a new study that other researchers are calling the most detailed portrait yet of income mobility in the U.S., "where you grow up matters." The study is based on millions of anonymous earnings records and is the first to compare upward mobility across metropolitan areas.
So, climbing the income ladder occurs less often in the Southeast and industrial Midwest with the odds notably low in places like Atlanta and Charlotte.
According to Nathan Hendren, a Harvard economist: "There is tremendous variation across the U.S. in the extent that kids can rise out of poverty." The variation does not come simply from the fact that some areas have higher average incomes: upward mobility rates, Hendren notes, often differ sharply in areas where average income is similar, like Atlanta and Seattle.
The "interactive map" alone is worth the time to look at the study data. A sweep of the color coded U.S. map yields (by county) the chances a child raised in the bottom fifth rose to the top fifth ($70,000 by the age of 30 or $100,000 by the age of 45) in his/her career.
The researches identified four factors that appeared to affect income mobility, including the size and dispersion of the local middles class. All else being equal, upward mobility tended to be higher in metropolitan areas where poor families were dispersed among mixed-income neighborhoods.
In previous studies of mobility, economists have found that a smaller percentage of people escaped childhood poverty in the United States than in several other rich countries including Canada, Australia, France, Germany and Japan. This latest study is consistent with those findings.
For me, I find it especially interesting that children who moved at a young age from a low-mobility area to a high-mobility area did almost as well as those who spent their entire childhoods in a higher-mobility area. But children who moved as teenagers did less well.
For economists, the comparison of metropolitan areas allows researchers to consider local factors that previous studies could not.
Brilliant work!
Thursday, July 11, 2013
Defining Prosperity Down
http://www.nytimes.com/2013/07/08/opinion/krugman-defining-prosperity-down.html?src=recpb&_r=0
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"A man who views the world at 50 the same as he did at 20 has wasted 30 years of his life." (Muhammad Ali)
***************
Paul Krugman defines last Friday's employment report as "not bad." He has reservations. I do too. Krugman defines his overall problem as the jobs picture. So do I.
The U.S. economy should be adding more than 300,000 jobs per month at this point, not fewer than 200,000. Krugman's "Economic Policy Institute" attachment provides an excellent perspective on that: we would need more than 5 years of job growth at this rate to get back to the level of unemployment that prevailed before the Great Recession. And, to quote Krugman: "Full recovery...may never happen."
We're certainly not going to get more "fiscal" stimulus from the federal government. With the austerity politicians in power, we're actually getting job eliminations in government. So, when we see the BLS (the U.S. Bureau of Labor Statistics) reports each month, the "plus jobs" numbers are now really private sector "up" and public sector "down."
Then, of course, there is the Federal Reserve which has done as much as it could with monetary policy stimulus and linking that to the unemployment rate. This "linkage" is an outstanding move but I've seen no numbers that show the U.S. unemployment rate is down to 6.5% (the Fed's magic number). And, whenever we get there, is 6.5% the new normal? "Normal" used to be 5% for full employment in the U.S. according to economists generally.
Again, according to Krugman, investment in equipment and software is already well above pre-recession levels basically "...because technology marches on and businesses must spend to keep up." And "housing" is definitely staging a comeback.
But, if housing is staging a comeback, then mortgage interest rates will go up (and are) so that means a somewhat slower growth in home sales, which is what we don't need.
I agree with Krugman's conclusion that there's a real risk bad policy will choke off our already inadequate recovery. It's like "Murphy's Law."
Krugman gives us the perfect definition of an example of what I call "political economics:" "If unemployment rises from 6% to 7% during an election year, the incumbent will probably lose. But, if it stays flat at 8% thru the incumbent's whole term, he or she will probably be returned to power. And this means that there's remarkably little political pressure to end our continuing, if low-grade, depression."
I was happy to see that Krugman supported what I've been saying lately: "I can't help recalling that the last time we were in this kind of situation, the thing that eventually turned up was World War II."
***************
"A man who views the world at 50 the same as he did at 20 has wasted 30 years of his life." (Muhammad Ali)
***************
Paul Krugman defines last Friday's employment report as "not bad." He has reservations. I do too. Krugman defines his overall problem as the jobs picture. So do I.
The U.S. economy should be adding more than 300,000 jobs per month at this point, not fewer than 200,000. Krugman's "Economic Policy Institute" attachment provides an excellent perspective on that: we would need more than 5 years of job growth at this rate to get back to the level of unemployment that prevailed before the Great Recession. And, to quote Krugman: "Full recovery...may never happen."
We're certainly not going to get more "fiscal" stimulus from the federal government. With the austerity politicians in power, we're actually getting job eliminations in government. So, when we see the BLS (the U.S. Bureau of Labor Statistics) reports each month, the "plus jobs" numbers are now really private sector "up" and public sector "down."
Then, of course, there is the Federal Reserve which has done as much as it could with monetary policy stimulus and linking that to the unemployment rate. This "linkage" is an outstanding move but I've seen no numbers that show the U.S. unemployment rate is down to 6.5% (the Fed's magic number). And, whenever we get there, is 6.5% the new normal? "Normal" used to be 5% for full employment in the U.S. according to economists generally.
Again, according to Krugman, investment in equipment and software is already well above pre-recession levels basically "...because technology marches on and businesses must spend to keep up." And "housing" is definitely staging a comeback.
But, if housing is staging a comeback, then mortgage interest rates will go up (and are) so that means a somewhat slower growth in home sales, which is what we don't need.
I agree with Krugman's conclusion that there's a real risk bad policy will choke off our already inadequate recovery. It's like "Murphy's Law."
Krugman gives us the perfect definition of an example of what I call "political economics:" "If unemployment rises from 6% to 7% during an election year, the incumbent will probably lose. But, if it stays flat at 8% thru the incumbent's whole term, he or she will probably be returned to power. And this means that there's remarkably little political pressure to end our continuing, if low-grade, depression."
I was happy to see that Krugman supported what I've been saying lately: "I can't help recalling that the last time we were in this kind of situation, the thing that eventually turned up was World War II."
Thursday, June 20, 2013
The IMF On The U.S. Economy
http://economix.blogs.nytimes.com/2013/06/17/the-current-u-s-economy-text-and-subtext/?emc=eta1
http://www.nytimes.com/2013/06/17/opinion/krugman-fight-the-future.html?partner=rssnyt&emc=rss
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"A competent leader can get efficient service from poor troops, while on the contrary an incapable leader can demoralize the best of troops." (General John J. Pershing)
***************
If I could put two brilliant minds together and see how the IMF views the U.S. economy, that would be my objective for these thoughts.
Jared Bernstein's view on what the IMF has just published is that they see the U.S. stuck in a "sloggy," "backward-leaning," L-shaped recovery: "The United States economy, with considerable prodding from fiscal, financial (the bailouts), and monetary help, exited a historically deep recession in the second half of 2009, but has been growing relatively slowly since then." Not enough stimulus for not long enough.
IMF: "Underlying fundamentals have been gradually improving." Bernstein: "Whose fundamentals...? At times like this, there's a risk that the economy is doing well, EXCEPT FOR MOST OF THE PEOPLE IN IT!" (my caps)
IMF: "The modest growth rate of 2.2% in 2012 reflected legacy effects from the financial crisis and deficit reduction..." Bernstein: "Current growth rates are not fast enough to put much downward pressure on the unemployment rate...(20 million who are un- and underemployed). Moreover, the IMF predicts slower growth (1.9%) this year."
IMF: "...house prices and construction activity have rebounded, household balance sheets have strengthened, labor market conditions have improved, and corporate profitability and balance sheets remain strong..." Bernstein: "All true, and all helpful developments, especially the housing part, but there's a large imbalance between improving labor market conditions and corporate profitability...In fact, the compensation share of national income is at a 48 year low, the profit share at an all-time high."
Bernstein: "The picture painted in broad strokes by the IMF is correct and not all without hope. As they say, things are improving, albeit too slowly. But in every case, we could be doing better were it not for policy mistakes."
Krugman refers to an article in the IMF Survey magazine titled "Ease Off Spending cuts to Boost U.S. Recovery." The title speaks for itself. But, Krugman has an issue with Christine Lagarde, the fund's head, who called on us to hurry up and put in place a medium term road map to restore long run fiscal sustainability. Krugman's gripe: "Why, exactly, do we need to hurry up? Is it urgent that we agree now on how we'll deal with fiscal issues of the 2020s, the 2030s and beyond?"
Krugman's answer: "No it isn't. And in practice, focusing on 'long-run fiscal sustainability' -- which usually ends up being mainly about 'entitlement reform,' aka cuts to Social Security and other programs -- isn't a way of being responsible. On the contrary, it's an excuse, a way to avoid dealing with the severe economic problems we face right now."
So, the time for big decisions about the long run is not yet: "And, because the time is not yet, influential people need to stop using the future as an excuse for inaction. The clear and present danger is mass unemployment, and we should deal with it, now."
In addition to being a Nobel Prize winner in economics, Krugman authored a book published in 2011 entitled: "End This Depression Now." The book eloquently makes the case for a burst in government spending to jump start the economy. Proof that he's right is the underwhelming GDP growth in the U.S. since the original "stimulus" was enacted. Both Krugman and Warren Buffet said, at the time, that it (the "stimulus") would not be enough, and they have subsequently been proved right.
I'm going to guess that things will start moving again by 2020. They could have started "moving" again a lot sooner with more spending and cost cutting later on after things got better.
http://www.nytimes.com/2013/06/17/opinion/krugman-fight-the-future.html?partner=rssnyt&emc=rss
***************
"A competent leader can get efficient service from poor troops, while on the contrary an incapable leader can demoralize the best of troops." (General John J. Pershing)
***************
If I could put two brilliant minds together and see how the IMF views the U.S. economy, that would be my objective for these thoughts.
Jared Bernstein's view on what the IMF has just published is that they see the U.S. stuck in a "sloggy," "backward-leaning," L-shaped recovery: "The United States economy, with considerable prodding from fiscal, financial (the bailouts), and monetary help, exited a historically deep recession in the second half of 2009, but has been growing relatively slowly since then." Not enough stimulus for not long enough.
IMF: "Underlying fundamentals have been gradually improving." Bernstein: "Whose fundamentals...? At times like this, there's a risk that the economy is doing well, EXCEPT FOR MOST OF THE PEOPLE IN IT!" (my caps)
IMF: "The modest growth rate of 2.2% in 2012 reflected legacy effects from the financial crisis and deficit reduction..." Bernstein: "Current growth rates are not fast enough to put much downward pressure on the unemployment rate...(20 million who are un- and underemployed). Moreover, the IMF predicts slower growth (1.9%) this year."
IMF: "...house prices and construction activity have rebounded, household balance sheets have strengthened, labor market conditions have improved, and corporate profitability and balance sheets remain strong..." Bernstein: "All true, and all helpful developments, especially the housing part, but there's a large imbalance between improving labor market conditions and corporate profitability...In fact, the compensation share of national income is at a 48 year low, the profit share at an all-time high."
Bernstein: "The picture painted in broad strokes by the IMF is correct and not all without hope. As they say, things are improving, albeit too slowly. But in every case, we could be doing better were it not for policy mistakes."
Krugman refers to an article in the IMF Survey magazine titled "Ease Off Spending cuts to Boost U.S. Recovery." The title speaks for itself. But, Krugman has an issue with Christine Lagarde, the fund's head, who called on us to hurry up and put in place a medium term road map to restore long run fiscal sustainability. Krugman's gripe: "Why, exactly, do we need to hurry up? Is it urgent that we agree now on how we'll deal with fiscal issues of the 2020s, the 2030s and beyond?"
Krugman's answer: "No it isn't. And in practice, focusing on 'long-run fiscal sustainability' -- which usually ends up being mainly about 'entitlement reform,' aka cuts to Social Security and other programs -- isn't a way of being responsible. On the contrary, it's an excuse, a way to avoid dealing with the severe economic problems we face right now."
So, the time for big decisions about the long run is not yet: "And, because the time is not yet, influential people need to stop using the future as an excuse for inaction. The clear and present danger is mass unemployment, and we should deal with it, now."
In addition to being a Nobel Prize winner in economics, Krugman authored a book published in 2011 entitled: "End This Depression Now." The book eloquently makes the case for a burst in government spending to jump start the economy. Proof that he's right is the underwhelming GDP growth in the U.S. since the original "stimulus" was enacted. Both Krugman and Warren Buffet said, at the time, that it (the "stimulus") would not be enough, and they have subsequently been proved right.
I'm going to guess that things will start moving again by 2020. They could have started "moving" again a lot sooner with more spending and cost cutting later on after things got better.
Tuesday, June 11, 2013
The Unemployed Economy
http://economix.blogs.nytimes.com/2013/06/07/long-term-jobless-still-a-bleak-picture/
http://www.nytimes.com/2013/06/10/opinion/krugman-the-big-shrug.html?emc=eta1
***************
"We talk about quality in products and services. What about quality in our relationships, quality in our communications, and quality in our promises to each other?" (Max De Pree)
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I think I'm living in an alternative universe but Annie Lowrey and Paul Krugman are helping me with that. Economists and politicians are actually happy that unemployment is down to 7.6%! Lowrey points out that long-term unemployment counts 4.4 million workers that have been out of a job for more than six months. That's not a statistic - that's people!
If you break down the demographics, the number of people (May, 2013) who report being out of work for less than 5 weeks has almost returned to the same level as in 2007. But the number of people unemployed 5 to 14 weeks is about 25% higher. For those out of a job 15 to 26 weeks, it's 78% higher. And, the number of long-term jobless, those unemployed for more than 27 weeks, is 257% higher! So, the longer a person is out of work...
Krugman defines normal (pre-crisis) as an economy adding a million or more jobs each year, enough to keep up with the working-age population. Normal meant an unemployment rate not much above 5%. And, while there was some unemployment, normal meant very few people out of work for extended periods.
Back then (pre-crisis), I was arguing that I didn't want to see an economy where 5% unemployment was what economists thought was necessary for things to hum along smoothly. Ridiculous.
Krugman goes on to help me with the language of economics: "For more than three years, some of us have fought the policy elite's damaging obsession with budget deficits, an obsession that led governments to cut investment when they should have been raising it, to destroy jobs when job creation should have been their priority. That fight seems largely won -- in fact I don't think I've ever seen anything quite like the sudden intellectual collapse of austerity economics as a policy doctrine."
Krugman goes on: "But while insiders no longer seem determined to worry about the wrong things that's not enough; they also need to start worrying about the right things -- namely, the plight of the jobless and the immense continuing waste from a depressed economy. And that's not happening. Instead, policy makers both here and in Europe seem gripped by a combination of complacency and fatalism, a sense that nothing need be done and nothing can be done."
There's a reason why Krugman has a Nobel.
Alan S. Blinder, writing this week in the Wall Street Journal (6/10/13 Opinion), points out that the Brookings Institution's Hamilton Project estimates each month what it calls a jobs gap defined as the number of jobs needed to return employment to its prerecession levels and also absorb new entrants into the labor force. The project's latest jobs-gap estimate is 9.9 million jobs. At a rate of 194,000 a month, it would take almost 8 more years to eliminate that gap.
To quote Blinder: "So any complacency is misguided. Rather, policy makers should be running around like their hair is on fire."
Blinder has concrete ideas about what to do that could work. Speaking of "fire," I'm thinking of that old saying about "Nero fiddles while Rome burns." Nobody in government is even surfacing ideas about what to do on the employment front.
Short term, we're not in a "recovery." We're in a "non-recession" because the GDP numbers are up and not down. Long term, I'm guessing appropriate growth will be back by 2020. But, at what price?
http://www.nytimes.com/2013/06/10/opinion/krugman-the-big-shrug.html?emc=eta1
***************
"We talk about quality in products and services. What about quality in our relationships, quality in our communications, and quality in our promises to each other?" (Max De Pree)
***************
I think I'm living in an alternative universe but Annie Lowrey and Paul Krugman are helping me with that. Economists and politicians are actually happy that unemployment is down to 7.6%! Lowrey points out that long-term unemployment counts 4.4 million workers that have been out of a job for more than six months. That's not a statistic - that's people!
If you break down the demographics, the number of people (May, 2013) who report being out of work for less than 5 weeks has almost returned to the same level as in 2007. But the number of people unemployed 5 to 14 weeks is about 25% higher. For those out of a job 15 to 26 weeks, it's 78% higher. And, the number of long-term jobless, those unemployed for more than 27 weeks, is 257% higher! So, the longer a person is out of work...
Krugman defines normal (pre-crisis) as an economy adding a million or more jobs each year, enough to keep up with the working-age population. Normal meant an unemployment rate not much above 5%. And, while there was some unemployment, normal meant very few people out of work for extended periods.
Back then (pre-crisis), I was arguing that I didn't want to see an economy where 5% unemployment was what economists thought was necessary for things to hum along smoothly. Ridiculous.
Krugman goes on to help me with the language of economics: "For more than three years, some of us have fought the policy elite's damaging obsession with budget deficits, an obsession that led governments to cut investment when they should have been raising it, to destroy jobs when job creation should have been their priority. That fight seems largely won -- in fact I don't think I've ever seen anything quite like the sudden intellectual collapse of austerity economics as a policy doctrine."
Krugman goes on: "But while insiders no longer seem determined to worry about the wrong things that's not enough; they also need to start worrying about the right things -- namely, the plight of the jobless and the immense continuing waste from a depressed economy. And that's not happening. Instead, policy makers both here and in Europe seem gripped by a combination of complacency and fatalism, a sense that nothing need be done and nothing can be done."
There's a reason why Krugman has a Nobel.
Alan S. Blinder, writing this week in the Wall Street Journal (6/10/13 Opinion), points out that the Brookings Institution's Hamilton Project estimates each month what it calls a jobs gap defined as the number of jobs needed to return employment to its prerecession levels and also absorb new entrants into the labor force. The project's latest jobs-gap estimate is 9.9 million jobs. At a rate of 194,000 a month, it would take almost 8 more years to eliminate that gap.
To quote Blinder: "So any complacency is misguided. Rather, policy makers should be running around like their hair is on fire."
Blinder has concrete ideas about what to do that could work. Speaking of "fire," I'm thinking of that old saying about "Nero fiddles while Rome burns." Nobody in government is even surfacing ideas about what to do on the employment front.
Short term, we're not in a "recovery." We're in a "non-recession" because the GDP numbers are up and not down. Long term, I'm guessing appropriate growth will be back by 2020. But, at what price?
Monday, June 10, 2013
Global Human Capital
http://economix.blogs.nytimes.com/2013/06/10/the-once-but-no-longer-golden-age-of-human-capital/?emc=eta1
***************
"People must be taught how to think, not what to think." (Margaret Meade)
***************
According to Nancy Folbre, only slightly more than half of college presidents (54%) believe that a bachelor's degree is worth more than 5 years ago (based on a recent survey by the Chronicle of Higher Education).
And, again according to Folbre, a majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they spend (based on a recent survey by the Pew Research Center).
Folbre's perspective is that the problems are particularly conspicuous on the "supply side:" declining state support, higher tuition and fees, increased inequality of access and the growing burden of debt. To quote Folbre: "The investment costs more than it once did and remains beyond the reach of those who need it most."
Folbre goes into great depth about the economics of what is currently transpiring and notes that students are now being encouraged to think more strategically about their majors. But, as more and more students pile into science, technology, engineering and mathematics (the so-called STEM fields), the wage premiums for those fields could decline.
Interestingly, she also points out that Richard Vedder "...warns against both public and private over-investment in education, pointing to the growing tendency for college graduates to land in jobs that don't actually require the credential they hold."
By the same token, colleges ought to be working more to evaluate the "markets" for the degrees they confer (graduate school, business, etc.). Maybe history majors go to law school. Fine. Where do English majors go? Where do philosophy majors go?
Maybe our current lazy GDP growth will begin to accelerate again as we approach the end of this decade. Hopefully, "jobs" will follow.
***************
"People must be taught how to think, not what to think." (Margaret Meade)
***************
According to Nancy Folbre, only slightly more than half of college presidents (54%) believe that a bachelor's degree is worth more than 5 years ago (based on a recent survey by the Chronicle of Higher Education).
And, again according to Folbre, a majority of Americans (57%) say the higher education system in the United States fails to provide students with good value for the money they spend (based on a recent survey by the Pew Research Center).
Folbre's perspective is that the problems are particularly conspicuous on the "supply side:" declining state support, higher tuition and fees, increased inequality of access and the growing burden of debt. To quote Folbre: "The investment costs more than it once did and remains beyond the reach of those who need it most."
Folbre goes into great depth about the economics of what is currently transpiring and notes that students are now being encouraged to think more strategically about their majors. But, as more and more students pile into science, technology, engineering and mathematics (the so-called STEM fields), the wage premiums for those fields could decline.
Interestingly, she also points out that Richard Vedder "...warns against both public and private over-investment in education, pointing to the growing tendency for college graduates to land in jobs that don't actually require the credential they hold."
By the same token, colleges ought to be working more to evaluate the "markets" for the degrees they confer (graduate school, business, etc.). Maybe history majors go to law school. Fine. Where do English majors go? Where do philosophy majors go?
Maybe our current lazy GDP growth will begin to accelerate again as we approach the end of this decade. Hopefully, "jobs" will follow.
Thursday, June 6, 2013
The Current Employment Rate
http://economix.blogs.nytimes.com/2013/06/03/how-work-is-rebounding-or-not-globally/?src=recpb
***************
"Millions saw the apple fall, but Newton was the only one who asked why." (Bernard Baruch)
***************
I think it's great that the Fed has a goal of continuing low interest rates (or whatever they call it) until the unemployment rate gets down to 6.5%. I've never seen the Fed connect that way with a real employment number before (that doesn't mean they haven't).
Edward Lazear, who was the chairman of the President's Council of Economic Advisers (2006-2009), and is a Hoover Institution fellow, and is a professor at Stanford University's Graduate School of Business, says in a June 5 article for the Wall Street Journal: "At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards."
His point is that watching the unemployment rate is not the best guide to the strength of the labor market: "Instead, the Fed and the rest of us should be watching the employment rate." First because the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't: "In 2006, 63.4% of the working-age population was employed. That percentage declined to a low of 58.2% in July 2011 and now stands at 58.6%. By this measure, the labor market's health has barely changed over the past three years."
Second, the headline unemployment rate, what the Bureau of Labor Statistics calls "U3," uses as the numerator the number of individuals who are actively seeking work but do not have jobs. That's OK, as far as it goes, but there is another more relevant number that covers a larger portion of the population: the "U6." The U6 counts those marginally attached to the workforce, "...including the unemployed who dropped out of the labor market and are not actively seeking work because they are discouraged, as well as those working part time because they cannot find full-time work."
Lazear: "Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because people are actually working or because people dropped out of the labor market entirely, reducing the number actually seeking work. The employment rate - that is, the employment-to-population ratio - eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers who are actually working."
So, while the unemployment rate has fallen over the past three plus years, the employment-to-population ratio has stayed almost constant at about 58.5%. So, we're not gaining any ground on where we were in 2006 (63.4%). Why create any more jobs than you need to if you have exceptional manufacturing productivity by producing more with fewer people?
What About the Rest of the World?
Annie Lowrey has looked at a major report from the International Labor Organization published on Monday of this week on employment around the world. As she says, "The study paints a picture of a world struggling to create jobs in the wake of a global recession, with developing economies enjoying stronger growth and a better jobs picture than developed economies..."
Some points:
* The global employment rate of 55.7% is still nearly a percentage point lower than it was before the crisis. The world needs about 31 million jobs to make up the gap.
* Globally, there are about 200 million -- 200 million -- unemployed people.
* For developing economies, employment rates will return to their precrisis levels around 2015. For advanced economies, it will take until after 2017. For some countries, the crisis never ended (Cyprus, Greece, Portugal and Spain).
* For developed countries, a better job market has often gone hand-in-hand with worse jobs. More people are being hired, but those jobs are often part time, low paying or temporary. This is not true for the U.S. The U.S. has fewer jobs, but those jobs are, on balance, of higher quality.
* The American middle class is shrinking. And, it has been for three decades. The share of adults living in middle-income households has fallen from 61% in 1970 to 51% in 2010.
Overall, the futurists (and the good ones take everything into account) see the U.S. taking off again by the end of this decade. Between now and then, who knows?
***************
"Millions saw the apple fall, but Newton was the only one who asked why." (Bernard Baruch)
***************
I think it's great that the Fed has a goal of continuing low interest rates (or whatever they call it) until the unemployment rate gets down to 6.5%. I've never seen the Fed connect that way with a real employment number before (that doesn't mean they haven't).
Edward Lazear, who was the chairman of the President's Council of Economic Advisers (2006-2009), and is a Hoover Institution fellow, and is a professor at Stanford University's Graduate School of Business, says in a June 5 article for the Wall Street Journal: "At the present slow pace of job growth, it will require more than a decade to get back to full employment defined by prerecession standards."
His point is that watching the unemployment rate is not the best guide to the strength of the labor market: "Instead, the Fed and the rest of us should be watching the employment rate." First because the better measure of a strong labor market is the proportion of the population that is working, not the proportion that isn't: "In 2006, 63.4% of the working-age population was employed. That percentage declined to a low of 58.2% in July 2011 and now stands at 58.6%. By this measure, the labor market's health has barely changed over the past three years."
Second, the headline unemployment rate, what the Bureau of Labor Statistics calls "U3," uses as the numerator the number of individuals who are actively seeking work but do not have jobs. That's OK, as far as it goes, but there is another more relevant number that covers a larger portion of the population: the "U6." The U6 counts those marginally attached to the workforce, "...including the unemployed who dropped out of the labor market and are not actively seeking work because they are discouraged, as well as those working part time because they cannot find full-time work."
Lazear: "Every time the unemployment rate changes, analysts and reporters try to determine whether unemployment changed because people are actually working or because people dropped out of the labor market entirely, reducing the number actually seeking work. The employment rate - that is, the employment-to-population ratio - eliminates this issue by going straight to the bottom line, measuring the proportion of potential workers who are actually working."
So, while the unemployment rate has fallen over the past three plus years, the employment-to-population ratio has stayed almost constant at about 58.5%. So, we're not gaining any ground on where we were in 2006 (63.4%). Why create any more jobs than you need to if you have exceptional manufacturing productivity by producing more with fewer people?
What About the Rest of the World?
Annie Lowrey has looked at a major report from the International Labor Organization published on Monday of this week on employment around the world. As she says, "The study paints a picture of a world struggling to create jobs in the wake of a global recession, with developing economies enjoying stronger growth and a better jobs picture than developed economies..."
Some points:
* The global employment rate of 55.7% is still nearly a percentage point lower than it was before the crisis. The world needs about 31 million jobs to make up the gap.
* Globally, there are about 200 million -- 200 million -- unemployed people.
* For developing economies, employment rates will return to their precrisis levels around 2015. For advanced economies, it will take until after 2017. For some countries, the crisis never ended (Cyprus, Greece, Portugal and Spain).
* For developed countries, a better job market has often gone hand-in-hand with worse jobs. More people are being hired, but those jobs are often part time, low paying or temporary. This is not true for the U.S. The U.S. has fewer jobs, but those jobs are, on balance, of higher quality.
* The American middle class is shrinking. And, it has been for three decades. The share of adults living in middle-income households has fallen from 61% in 1970 to 51% in 2010.
Overall, the futurists (and the good ones take everything into account) see the U.S. taking off again by the end of this decade. Between now and then, who knows?
Tuesday, June 4, 2013
What's Behind the Rise in Home Prices?
http://dealbook.nytimes.com/2013/06/03/behind-the-rise-in-house-prices-wall-street-buyers/?src=me
***************
"Even if you're on the right track, you'll get run over if you just sit there." (Will Rogers)
***************
According to DealBook, the comeback in prices for houses is being fueled by institutional money. The Blackstone Group has purchased 26,000 homes in 9 states. Most of these firms are renting out houses with the possibility of unloading them at a profit when the prices get high enough.
Quoting DealBook, "Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills. Investment companies are buying up rundown homes at a time when ordinary people can't or won't...Nationwide, 68% of damaged homes sold in April went to investors and only 19% to first time home buyers...these investors put a floor under the housing market."
That's the good news. The bad news is what happens when the big institutions decide they want to sell because the market has peaked?
Nobody knows where this is going but wouldn't it be strange if we had a second "housing bubble" to follow up the first?
Stranger things have happened.
***************
"Even if you're on the right track, you'll get run over if you just sit there." (Will Rogers)
***************
According to DealBook, the comeback in prices for houses is being fueled by institutional money. The Blackstone Group has purchased 26,000 homes in 9 states. Most of these firms are renting out houses with the possibility of unloading them at a profit when the prices get high enough.
Quoting DealBook, "Some see the emergence of Wall Street buyers as a market-driven answer to the nation's housing ills. Investment companies are buying up rundown homes at a time when ordinary people can't or won't...Nationwide, 68% of damaged homes sold in April went to investors and only 19% to first time home buyers...these investors put a floor under the housing market."
That's the good news. The bad news is what happens when the big institutions decide they want to sell because the market has peaked?
Nobody knows where this is going but wouldn't it be strange if we had a second "housing bubble" to follow up the first?
Stranger things have happened.
Friday, May 31, 2013
Why Companies Aren't getting the Employees They Need
http://economix.blogs.nytimes.com/2013/05/31/how-to-cure-the-college-dropout-syndrome/?ref=business
***************
"In preparing for battle, I have found that plans are useless, but planning is indispensable." (General Dwight D. Eisenhower)
***************
Peter Cappelli is the George W. Taylor professor of management at the Wharton School (UPENN) and the director of Wharton's Center for Human Resources. Cappelli coined the term "purple squirrels" to describe what employers say they want when searching for employees because they are in no hurry to fill jobs. So, unless they find the perfect person, they won't fill the job.
As Cappelli says, "Employers are quick to lay blame. Schools aren't giving kids the right kind of training. The government isn't letting in enough high-skill immigrants. The list goes on...But I believe the real culprits are the employers themselves...With an abundance of workers to choose from, employers are demanding more of job candidates than ever before. They want prospective workers to be able to fill a role right away, without any training or ramp-up time...In other words, to get a job, you have to have that job already...It's a Catch-22 situation for workers - and it's hurting companies and the economy."
Cappelli concludes: "To get America's job engine revving again, companies need to stop pinning so much of the blame on our nation's education system. They need to drop the idea of finding perfect candidates and look for people who could do the job with a bit of training and practice."
From Cappelli's article in the Wall Street Journal which was recently re-published this past week, Cappelli quotes data from the staffing company ManpowerGroup which reports that 52% of employers surveyed say they have difficulty filling positions because of talent shortages. As Cappelli says, "...the problem is an illusion." More data from that survey:
* 47% of employers blame prospects' lack of hard job skills or technical skills
* 35% of companies cite candidates' lack of experience
* 25% of companies blame lack of business knowledge or formal qualifications
* 28% of companies are increasing staff training and development
With that last bullet above, I suspicion that these are departments that were eliminated to reduce costs and are now being restored as companies realize the positive impact these departments have on productivity.
Now, if we could link up Cappelli's thoughts with the work of Jeffry Selingo, former editor of The Chronicle of Higher Education and author of the new book College (Un)Bound, there might be some progress in how we look at employment and training for high school and college graduates.
Selingo's perspective is: what needs to be done about the fact that slightly more than 50% of American students who enter college leave with a bachelor's degree? It begins with college selection: students end up poorly matching their campus - a third of students now transfer and many drop out. In addition: "...we have this fascination with the bachelor's degree in the United States, and we think everyone needs to earn one at the same point in their lifetime, enrolling at 18 years old." Not everyone is ready for college at 18.
Plus, as Selingo looks at it, campus culture and money play a role, "If you go to a college with a low graduation rate, your peers have an impact on your thinking: if no one else is graduating in four years, why should I?"
So, why does everyone have to go to college at 18? Again Selingo, "For some, a two year degree might be more appropriate at 18. And, recent studies of wage data of college graduates...show that the wage returns of two year technical degrees are greater than many bachelor's degrees in the first year after college...Let's think of extending the period for a bachelor's to be sure more students succeed in getting one. We don't need alternatives to the bachelor's degree, just more constructive detours on the pathway to college for those who are not ready at 18."
The Way Forward
According to Selingo, in 2023 the biggest difference in the college curriculum will be that more courses will be taught in the hybrid format: a mix of face to face and online. That will allow for a more personalized experience for students so they can learn at their own pace and break the traditional idea of the academic calendar where everyone needs to start in September and end in May.
According to Cappelli, there are three ways in which employees can get the skills they need without the employer having to invest in a lot of upfront training:
* Work with education providers: community colleges in many states have proved to be good partners with employers by tailoring very applied course work to the specific needs of the employer.
* Bring back aspects of apprenticeship: apprentices are paid less while they are mastering their craft - so employers aren't paying for training and a big salary at the same time.
* Promote from within: employees have useful knowledge that no outsider could have and should make great candidates for filling jobs higher up.
If the best companies and colleges listen to what Cappelli and Selingo have to say, unemployment rates will go lower and college graduation rates will go up.
I hope for the best.
***************
"In preparing for battle, I have found that plans are useless, but planning is indispensable." (General Dwight D. Eisenhower)
***************
Peter Cappelli is the George W. Taylor professor of management at the Wharton School (UPENN) and the director of Wharton's Center for Human Resources. Cappelli coined the term "purple squirrels" to describe what employers say they want when searching for employees because they are in no hurry to fill jobs. So, unless they find the perfect person, they won't fill the job.
As Cappelli says, "Employers are quick to lay blame. Schools aren't giving kids the right kind of training. The government isn't letting in enough high-skill immigrants. The list goes on...But I believe the real culprits are the employers themselves...With an abundance of workers to choose from, employers are demanding more of job candidates than ever before. They want prospective workers to be able to fill a role right away, without any training or ramp-up time...In other words, to get a job, you have to have that job already...It's a Catch-22 situation for workers - and it's hurting companies and the economy."
Cappelli concludes: "To get America's job engine revving again, companies need to stop pinning so much of the blame on our nation's education system. They need to drop the idea of finding perfect candidates and look for people who could do the job with a bit of training and practice."
From Cappelli's article in the Wall Street Journal which was recently re-published this past week, Cappelli quotes data from the staffing company ManpowerGroup which reports that 52% of employers surveyed say they have difficulty filling positions because of talent shortages. As Cappelli says, "...the problem is an illusion." More data from that survey:
* 47% of employers blame prospects' lack of hard job skills or technical skills
* 35% of companies cite candidates' lack of experience
* 25% of companies blame lack of business knowledge or formal qualifications
* 28% of companies are increasing staff training and development
With that last bullet above, I suspicion that these are departments that were eliminated to reduce costs and are now being restored as companies realize the positive impact these departments have on productivity.
Now, if we could link up Cappelli's thoughts with the work of Jeffry Selingo, former editor of The Chronicle of Higher Education and author of the new book College (Un)Bound, there might be some progress in how we look at employment and training for high school and college graduates.
Selingo's perspective is: what needs to be done about the fact that slightly more than 50% of American students who enter college leave with a bachelor's degree? It begins with college selection: students end up poorly matching their campus - a third of students now transfer and many drop out. In addition: "...we have this fascination with the bachelor's degree in the United States, and we think everyone needs to earn one at the same point in their lifetime, enrolling at 18 years old." Not everyone is ready for college at 18.
Plus, as Selingo looks at it, campus culture and money play a role, "If you go to a college with a low graduation rate, your peers have an impact on your thinking: if no one else is graduating in four years, why should I?"
So, why does everyone have to go to college at 18? Again Selingo, "For some, a two year degree might be more appropriate at 18. And, recent studies of wage data of college graduates...show that the wage returns of two year technical degrees are greater than many bachelor's degrees in the first year after college...Let's think of extending the period for a bachelor's to be sure more students succeed in getting one. We don't need alternatives to the bachelor's degree, just more constructive detours on the pathway to college for those who are not ready at 18."
The Way Forward
According to Selingo, in 2023 the biggest difference in the college curriculum will be that more courses will be taught in the hybrid format: a mix of face to face and online. That will allow for a more personalized experience for students so they can learn at their own pace and break the traditional idea of the academic calendar where everyone needs to start in September and end in May.
According to Cappelli, there are three ways in which employees can get the skills they need without the employer having to invest in a lot of upfront training:
* Work with education providers: community colleges in many states have proved to be good partners with employers by tailoring very applied course work to the specific needs of the employer.
* Bring back aspects of apprenticeship: apprentices are paid less while they are mastering their craft - so employers aren't paying for training and a big salary at the same time.
* Promote from within: employees have useful knowledge that no outsider could have and should make great candidates for filling jobs higher up.
If the best companies and colleges listen to what Cappelli and Selingo have to say, unemployment rates will go lower and college graduation rates will go up.
I hope for the best.
Thursday, May 30, 2013
CEOs & George Costanza
http://www.nytimes.com/2013/06/02/magazine/ceos-dont-need-to-earn-less-they-need-to-sweat-more.html?ref=business&_r=0
***************
"Ultimately, a genuine leader is not a searcher for consensus, but a molder of consensus." (Martin Luther King)
***************
Deep Thoughts For This Week (Adam Davidson - NY Times):
(1) A lot of people want CEOs to make less money.
(2) So why are they making so much more?
(3) Maybe they should be more afraid.
While the Dodd-Frank law requires a shareholder vote on executive pay at least every 3 years, the vote is not binding. So, Rex Tillerson's shareholder vote on his CEO pay at Exxon ($40 million) dropped from 78% approval last year to 70% this year (numbers approximate) but nobody's wringing their hands over it - that may be because Exxon is coming off its second biggest profit ever, earning $44.9 billion for 2012.
Technically, the board controls CEO pay, but, as Adam Davidson points out, boards suffer from knowing less about what a CEO does than the CEO himself. In addition, the consultants show the board third quartile pay trend lines that end where Tillerson is - he's the "top dot!" Davidson calls this the "principal-agent problem" where the "employer" (principal) doesn't know as much about the job as the "employee" (agent). So, "George Costanza was a comic incarnation of the principal-agent problem. He constantly invented schemes to make his employer think he was doing his job well when he wasn't doing much at all. 'When you look annoyed all the time', he once told Jerry and Elaine, 'people think that you are busy'."
Again, according to Davidson, "Boards and CEOs don't suffer from Costanza-like ineptitude, but they are harder to rein in. They are often rewarded when they don't succeed but are not usually penalized enough when they do a lackluster job."
So, "Whether it's Jamie Dimon or George Costanza, capitalism works only when people are truly anxious, not faking it. CEOs need to be afraid that shareholders will cut their pay if they don't do better."
And, how much did the Dodd-Frank law help with that?
***************
"Ultimately, a genuine leader is not a searcher for consensus, but a molder of consensus." (Martin Luther King)
***************
Deep Thoughts For This Week (Adam Davidson - NY Times):
(1) A lot of people want CEOs to make less money.
(2) So why are they making so much more?
(3) Maybe they should be more afraid.
While the Dodd-Frank law requires a shareholder vote on executive pay at least every 3 years, the vote is not binding. So, Rex Tillerson's shareholder vote on his CEO pay at Exxon ($40 million) dropped from 78% approval last year to 70% this year (numbers approximate) but nobody's wringing their hands over it - that may be because Exxon is coming off its second biggest profit ever, earning $44.9 billion for 2012.
Technically, the board controls CEO pay, but, as Adam Davidson points out, boards suffer from knowing less about what a CEO does than the CEO himself. In addition, the consultants show the board third quartile pay trend lines that end where Tillerson is - he's the "top dot!" Davidson calls this the "principal-agent problem" where the "employer" (principal) doesn't know as much about the job as the "employee" (agent). So, "George Costanza was a comic incarnation of the principal-agent problem. He constantly invented schemes to make his employer think he was doing his job well when he wasn't doing much at all. 'When you look annoyed all the time', he once told Jerry and Elaine, 'people think that you are busy'."
Again, according to Davidson, "Boards and CEOs don't suffer from Costanza-like ineptitude, but they are harder to rein in. They are often rewarded when they don't succeed but are not usually penalized enough when they do a lackluster job."
So, "Whether it's Jamie Dimon or George Costanza, capitalism works only when people are truly anxious, not faking it. CEOs need to be afraid that shareholders will cut their pay if they don't do better."
And, how much did the Dodd-Frank law help with that?
Wednesday, May 29, 2013
Larry Summers
http://www.slate.com/blogs/moneybox/2013/05/27/summers_for_fed_chair_no_way.html
***************
"Leaders are made, they are not born. They are made by hard effort, which is the price all of us must pay to achieve any goal that is worthwhile." (Vince Lombardi)
***************
A good friend sent me a blog post from "Slate" about Larry Summers and how he's being pushed as a replacement for Ben Bernanke as chairman of the Federal Reserve. Bernanke did not attend the annual Fed meeting in Jackson Hole this year which is considered a sign that he might be leaving.
If Bernanke is leaving, that would be a shame. He's done everything he could to put "liquidity" back into the U.S. system since the worldwide recession and has connected that to the unemployment rate: basically, he won't let up until the U.S. unemployment rate drops to 6.5%. That's never been done before and it shows a certain social awareness that more people in government ought to have.
On to Larry Summers: this is a guy that got fired when he was president of Harvard! That's hard to do. So, how did he achieve that lowly distinction? Let me quote the blog post: "...the guy who said women don't succeed in academia because math is too hard for them..."
Really.
Yet, President Obama saw fit to appoint him guru of economic matters in an effort to respond to the worldwide economic crisis. Obama was rewarded, in that case, with Summers' great quote that "...there's no adult in charge." I'm sure that President Obama likes to think of himself as an "adult."
Janet Yellen is vice chairwomen of the Federal Reserve and the next in line. If we don't like that, then Christina Romer is a good choice for many reasons, not the least of which is that she pretty much disagreed with Larry Summers on everything when she was part of the administration's economic team.
So, let's have anybody but Larry Summers.
***************
"Leaders are made, they are not born. They are made by hard effort, which is the price all of us must pay to achieve any goal that is worthwhile." (Vince Lombardi)
***************
A good friend sent me a blog post from "Slate" about Larry Summers and how he's being pushed as a replacement for Ben Bernanke as chairman of the Federal Reserve. Bernanke did not attend the annual Fed meeting in Jackson Hole this year which is considered a sign that he might be leaving.
If Bernanke is leaving, that would be a shame. He's done everything he could to put "liquidity" back into the U.S. system since the worldwide recession and has connected that to the unemployment rate: basically, he won't let up until the U.S. unemployment rate drops to 6.5%. That's never been done before and it shows a certain social awareness that more people in government ought to have.
On to Larry Summers: this is a guy that got fired when he was president of Harvard! That's hard to do. So, how did he achieve that lowly distinction? Let me quote the blog post: "...the guy who said women don't succeed in academia because math is too hard for them..."
Really.
Yet, President Obama saw fit to appoint him guru of economic matters in an effort to respond to the worldwide economic crisis. Obama was rewarded, in that case, with Summers' great quote that "...there's no adult in charge." I'm sure that President Obama likes to think of himself as an "adult."
Janet Yellen is vice chairwomen of the Federal Reserve and the next in line. If we don't like that, then Christina Romer is a good choice for many reasons, not the least of which is that she pretty much disagreed with Larry Summers on everything when she was part of the administration's economic team.
So, let's have anybody but Larry Summers.
Tuesday, May 28, 2013
Fair Pay
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3262#.UaIrILV8JrM.email
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"Before you become a leader, success is about growing yourself. When you become a leader, success is all about growing others." (Jack Welch)
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K@W has put out an article this month that addresses the issue of pay equity. There aren't many people who know what they're doing on this issue.
Doing it right involves relative ranking of jobs inside a company and those relationships can be different in different companies.
It all starts with competitive pay data. If you can get salary survey data for your industry or function, then you can reduce it to trend lines by job or job area. Place your salary data up against the industry quartiles and see where you rank. If your overall pay trend line is "average," then expect "average" performance. If you want to be a "third quartile" performer (Top 25%) for your industry, you better pay like it. Third quartile pay is the norm for top companies in the Fortune 500.
Once you get base pay to third quartile, then what happens when bonuses kick in? Usually, management bonus plans kick in for the top 100 or top 200 executives. That's a separate "total cash" trend line. Most companies that are third quartile in base salaries want to be there with their bonus trend lines as well. Here, specific goals that relate to incentive payouts are critical.
Believe it or not, what's important here in any company, is what the employees think of the pay system. If they feel that the relative ranking of jobs internally in a company reflects both the "market" and how "their company" values a job versus other jobs inside their company, then things move along smoothly. This is hard to get to. You have to have excellent competitive pay data and you have to have an excellent job evaluation system that reflects how the line management views the "value" of jobs in a company. For example, GM may pay its sales people less in base and bonus than Ford does because GM places less value internally on their sales force. GM may spend more on advertising than Ford does. You have to know what you're doing and your employees have to feel that you do.
The 204 multiple (CEO pay versus the average pay of a worker) referred to in the Wharton article helps to define the issue of "fair pay" but CEOs tend to be outliers in many cases anyway because they are turning around companies or keeping companies at the top of whatever industries they're in. Under the heading of "how much would you have to pay me to jump off a cliff..." what would our pay gurus think it took to get Ron Johnson to leave his former company to join a sinking ship in a different industry? In situations like that, the termination pay (if you can't get the job done, or the job is impossible) is in the contract.
Smart companies watch turnover rates at every level. They might adjust pay levels for certain jobs or departments if they thought they needed to. That's management.
The "Apple" example referred to in this article implies that the company has all the money in the world to pay their college graduates more (than $12 to $14 an hour) to work in their retail stores. Actually, Apple does have almost all the cash in the world but why would they pay more money than what's "competitive" for retail store employees. They're not stupid.
The better you communicate pay systems to employees, the more the "procedural fairness," as John Paul MacDuffie explains in the article. In many cases, it's not the pay that's unfair, it's the communication that's lousy.
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"Before you become a leader, success is about growing yourself. When you become a leader, success is all about growing others." (Jack Welch)
***************
K@W has put out an article this month that addresses the issue of pay equity. There aren't many people who know what they're doing on this issue.
Doing it right involves relative ranking of jobs inside a company and those relationships can be different in different companies.
It all starts with competitive pay data. If you can get salary survey data for your industry or function, then you can reduce it to trend lines by job or job area. Place your salary data up against the industry quartiles and see where you rank. If your overall pay trend line is "average," then expect "average" performance. If you want to be a "third quartile" performer (Top 25%) for your industry, you better pay like it. Third quartile pay is the norm for top companies in the Fortune 500.
Once you get base pay to third quartile, then what happens when bonuses kick in? Usually, management bonus plans kick in for the top 100 or top 200 executives. That's a separate "total cash" trend line. Most companies that are third quartile in base salaries want to be there with their bonus trend lines as well. Here, specific goals that relate to incentive payouts are critical.
Believe it or not, what's important here in any company, is what the employees think of the pay system. If they feel that the relative ranking of jobs internally in a company reflects both the "market" and how "their company" values a job versus other jobs inside their company, then things move along smoothly. This is hard to get to. You have to have excellent competitive pay data and you have to have an excellent job evaluation system that reflects how the line management views the "value" of jobs in a company. For example, GM may pay its sales people less in base and bonus than Ford does because GM places less value internally on their sales force. GM may spend more on advertising than Ford does. You have to know what you're doing and your employees have to feel that you do.
The 204 multiple (CEO pay versus the average pay of a worker) referred to in the Wharton article helps to define the issue of "fair pay" but CEOs tend to be outliers in many cases anyway because they are turning around companies or keeping companies at the top of whatever industries they're in. Under the heading of "how much would you have to pay me to jump off a cliff..." what would our pay gurus think it took to get Ron Johnson to leave his former company to join a sinking ship in a different industry? In situations like that, the termination pay (if you can't get the job done, or the job is impossible) is in the contract.
Smart companies watch turnover rates at every level. They might adjust pay levels for certain jobs or departments if they thought they needed to. That's management.
The "Apple" example referred to in this article implies that the company has all the money in the world to pay their college graduates more (than $12 to $14 an hour) to work in their retail stores. Actually, Apple does have almost all the cash in the world but why would they pay more money than what's "competitive" for retail store employees. They're not stupid.
The better you communicate pay systems to employees, the more the "procedural fairness," as John Paul MacDuffie explains in the article. In many cases, it's not the pay that's unfair, it's the communication that's lousy.
Saturday, May 4, 2013
Jobs, Wages & the Sequester
http://www.nytimes.com/2013/05/04/opinion/jobs-wages-and-the-sequester.html?hp
http://economix.blogs.nytimes.com/2013/05/03/keeping-up-not-getting-ahead/
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"I've never known anyone who said, 'I love problems,' but I've known many who have admitted that their greatest gains came in the middle of their pain." (John C. Maxwell)
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The Times Editorial Board points out that the employment report released Friday showed job growth for March revised upward to 138,000 new jobs followed by April even higher at 165,000.
So, quoting the Times: "But both tallies represent a big drop from February, which showed a healthy gain of 332,000 jobs. One interpretation is that the sequester-induced economic headwinds that began in March are hurting job growth, which might otherwise have taken off this year. Seen in that light, the April report portends elevated joblessness and low wages for at least as long as the sequester lasts, and possibly longer, depending on the extent of the economic damage from self-inflicted austerity."
Further: "At the average pace of job growth this year, it would take 5 years to return to the prerecession unemployment rate of 5%. It is doubtful that even the current pace can be sustained."
This Editorial Board note followed an article by Binyamin Appelbaum (Economix, 5/3/13), Keeping Up, Not Getting Ahead, where the perspective was that the American economy continues to add jobs in proportion to population growth: "Nothing less, nothing more."
The most important thing in Appelbaum's article is the "chart" which which shows the share of American adults with jobs has barely changed since 2010, hovering between 58.2% and 58.7%. This is roughly four percentage points lower than the employment rate before the recession, a difference of roughly 10 million jobs.
Appelbaum: "The lack of progress has been obscured by the steady decline of the high-profile unemployment rate, which continued in April. But the unemployment rate is easily misunderstood. The government counts as unemployed only those who are actively looking for new jobs. As people have given up, the unemployment rate has declined - not because more people are working, but because more people have stopped looking for work.
The federal government counts 11.7 million Americans as unemployed. The real number is more like 17 million.
If the labor force participation rate should be at (roughly) 63%, what's being done to give us confidence that there will be 10 million job opportunities out there? Government employee lay offs don't appear to be helping anything. Wait, those lay offs are saving money. But taxes from companies investing in the U.S. economy because of lowered tax rates would have paid for those jobs.
Investment, innovation and job creation seem to go together. We need to encourage whatever makes that happen!
http://economix.blogs.nytimes.com/2013/05/03/keeping-up-not-getting-ahead/
***************
"I've never known anyone who said, 'I love problems,' but I've known many who have admitted that their greatest gains came in the middle of their pain." (John C. Maxwell)
***************
The Times Editorial Board points out that the employment report released Friday showed job growth for March revised upward to 138,000 new jobs followed by April even higher at 165,000.
So, quoting the Times: "But both tallies represent a big drop from February, which showed a healthy gain of 332,000 jobs. One interpretation is that the sequester-induced economic headwinds that began in March are hurting job growth, which might otherwise have taken off this year. Seen in that light, the April report portends elevated joblessness and low wages for at least as long as the sequester lasts, and possibly longer, depending on the extent of the economic damage from self-inflicted austerity."
Further: "At the average pace of job growth this year, it would take 5 years to return to the prerecession unemployment rate of 5%. It is doubtful that even the current pace can be sustained."
This Editorial Board note followed an article by Binyamin Appelbaum (Economix, 5/3/13), Keeping Up, Not Getting Ahead, where the perspective was that the American economy continues to add jobs in proportion to population growth: "Nothing less, nothing more."
The most important thing in Appelbaum's article is the "chart" which which shows the share of American adults with jobs has barely changed since 2010, hovering between 58.2% and 58.7%. This is roughly four percentage points lower than the employment rate before the recession, a difference of roughly 10 million jobs.
Appelbaum: "The lack of progress has been obscured by the steady decline of the high-profile unemployment rate, which continued in April. But the unemployment rate is easily misunderstood. The government counts as unemployed only those who are actively looking for new jobs. As people have given up, the unemployment rate has declined - not because more people are working, but because more people have stopped looking for work.
The federal government counts 11.7 million Americans as unemployed. The real number is more like 17 million.
If the labor force participation rate should be at (roughly) 63%, what's being done to give us confidence that there will be 10 million job opportunities out there? Government employee lay offs don't appear to be helping anything. Wait, those lay offs are saving money. But taxes from companies investing in the U.S. economy because of lowered tax rates would have paid for those jobs.
Investment, innovation and job creation seem to go together. We need to encourage whatever makes that happen!
Tuesday, April 23, 2013
The Jobless Trap
http://www.nytimes.com/2013/04/22/opinion/krugman-the-jobless-trap.html?src=ISMR_AP_LO_MST_FB
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"Most people evaluate events in their lives according to how they will be personally affected. Leaders think within a broader context." (John C. Maxwell)
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Krugman is still on his "DEBT" perspective. He sees what we've done to respond to the worldwide financial crisis as "...a monstrously failed response to economic depression." He calls it "debt hysteria" and defines it as "fear that unless we slash spending we'll turn into Greece any day now."
But, about the real danger, he is 100% correct: "the corrosive effect, social and economic, of persistent high unemployment. And, even as the case for debt hysteria is collapsing, our worst fears about the damage from long-term unemployment are being confirmed."
He adds: "Five years after the crisis, unemployment remains elevated, with almost 12 million Americans out of work ... with 4.6 million unemployed for more than 6 months." And, the sad news here is that potential employers assume that something must be wrong with people who can't find a job, even if the real reason is simply "the terrible economy."
According to studies, a rising number of job openings does nothing to reduce the numbers of the long-term unemployed. According to Krugman, we are creating a permanent class of jobless Americans.
Krugman: "Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe." And we continue to make it worse by spending less and creating more unemployment. Oh, and let's not spend government money on badly needed road repair and other important infrastructure projects that would fix things that need to be fixed and create employment (on a 1/1.5 dollar spend ratio).
Krugman is right.
***************
"Most people evaluate events in their lives according to how they will be personally affected. Leaders think within a broader context." (John C. Maxwell)
***************
Krugman is still on his "DEBT" perspective. He sees what we've done to respond to the worldwide financial crisis as "...a monstrously failed response to economic depression." He calls it "debt hysteria" and defines it as "fear that unless we slash spending we'll turn into Greece any day now."
But, about the real danger, he is 100% correct: "the corrosive effect, social and economic, of persistent high unemployment. And, even as the case for debt hysteria is collapsing, our worst fears about the damage from long-term unemployment are being confirmed."
He adds: "Five years after the crisis, unemployment remains elevated, with almost 12 million Americans out of work ... with 4.6 million unemployed for more than 6 months." And, the sad news here is that potential employers assume that something must be wrong with people who can't find a job, even if the real reason is simply "the terrible economy."
According to studies, a rising number of job openings does nothing to reduce the numbers of the long-term unemployed. According to Krugman, we are creating a permanent class of jobless Americans.
Krugman: "Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe." And we continue to make it worse by spending less and creating more unemployment. Oh, and let's not spend government money on badly needed road repair and other important infrastructure projects that would fix things that need to be fixed and create employment (on a 1/1.5 dollar spend ratio).
Krugman is right.
787 Battery Approval
http://www.nytimes.com/2013/04/24/business/safety-board-examines-787-battery-approval.html?ref=business
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"Each time another person in the organization embraces the vision and passes it on, it's like giving the vision 'fresh legs." (John C. Maxwell)
***************
The National (Safety) Transportation Board opened a two day hearing on Tuesday to determine how 5 years of work by Boeing and the Federal Aviation Administration resulted in the approval of a lithium-ion battery for the Boeing 787 that could catch fire.
The board is looking at whether Boeing underestimated the risks involved with the new technology and how well regulators can evaluate new technologies when technical innovation is moving quickly, making it difficult for government regulators to keep up.
The FAA last week approved Boeing's plans to fix the plane's batteries. So, while the 787s could soon be flying again, investigators in the U.S. and Japan have not yet figured out "why" the batteries overheated in the first place.
I know there is a lot at stake financially but I'd want to know "why" those batteries were burning before I flew on that plane again.
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"Each time another person in the organization embraces the vision and passes it on, it's like giving the vision 'fresh legs." (John C. Maxwell)
***************
The National (Safety) Transportation Board opened a two day hearing on Tuesday to determine how 5 years of work by Boeing and the Federal Aviation Administration resulted in the approval of a lithium-ion battery for the Boeing 787 that could catch fire.
The board is looking at whether Boeing underestimated the risks involved with the new technology and how well regulators can evaluate new technologies when technical innovation is moving quickly, making it difficult for government regulators to keep up.
The FAA last week approved Boeing's plans to fix the plane's batteries. So, while the 787s could soon be flying again, investigators in the U.S. and Japan have not yet figured out "why" the batteries overheated in the first place.
I know there is a lot at stake financially but I'd want to know "why" those batteries were burning before I flew on that plane again.
Friday, April 19, 2013
The Excel Depression
http://www.nytimes.com/2013/04/19/opinion/krugman-the-excel-depression.html?hp
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"You've got to think about the 'big things' while you're doing small things, so that all the small things go in the right direction." (Alvin Toffler)
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"The story so far: At the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, "Growth in a Time of Debt," that purported to identify a critical "threshold," a tipping point, for government indebtedness. Once debt exceeds 90% of gross domestic product (GDP), they claimed, economic growth drops off sharply."
According to Krugman, their paper achieved an almost "sacred status" amongst self-proclaimed guardians of fiscal responsibility.
Unfortunately (or fortunately), their claim could not be substantiated by other economists using the same approach to the data analyzed. Nobody could prove that 90% was the tipping point for reversion to slow GDP growth!
Finally, researchers at the University of Massachusetts looked at the original spread sheet that Rogoff and Reinhart used and the mystery was solved: "First, they (Rogoff & Reinhart) omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error." So, as Krugman points out, if you correct for some of these errors, there is some correlation between high debt and slow growth, with no indication of which is causing which, and no sign of that 90% "threshold."
Krugman sees the Reinhart-Rogoff fiasco in a broader context: "the obviously intense desire of policy makers, politicians and pundits across the western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programs."
I see it as somewhat worse than that - it's an indictment of "economics" as a profession. Why can't that profession make up its mind whether spending into a "depression" (Krugman's term for what we were and "are" in) is the right or wrong thing to do. They can't even agree on that.
***************
"You've got to think about the 'big things' while you're doing small things, so that all the small things go in the right direction." (Alvin Toffler)
***************
"The story so far: At the beginning of 2010, two Harvard economists, Carmen Reinhart and Kenneth Rogoff, circulated a paper, "Growth in a Time of Debt," that purported to identify a critical "threshold," a tipping point, for government indebtedness. Once debt exceeds 90% of gross domestic product (GDP), they claimed, economic growth drops off sharply."
According to Krugman, their paper achieved an almost "sacred status" amongst self-proclaimed guardians of fiscal responsibility.
Unfortunately (or fortunately), their claim could not be substantiated by other economists using the same approach to the data analyzed. Nobody could prove that 90% was the tipping point for reversion to slow GDP growth!
Finally, researchers at the University of Massachusetts looked at the original spread sheet that Rogoff and Reinhart used and the mystery was solved: "First, they (Rogoff & Reinhart) omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error." So, as Krugman points out, if you correct for some of these errors, there is some correlation between high debt and slow growth, with no indication of which is causing which, and no sign of that 90% "threshold."
Krugman sees the Reinhart-Rogoff fiasco in a broader context: "the obviously intense desire of policy makers, politicians and pundits across the western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programs."
I see it as somewhat worse than that - it's an indictment of "economics" as a profession. Why can't that profession make up its mind whether spending into a "depression" (Krugman's term for what we were and "are" in) is the right or wrong thing to do. They can't even agree on that.
Friday, April 5, 2013
The Spring Swoon
http://www.nytimes.com/2013/04/06/business/economy/us-adds-only-88000-jobs-jobless-rate-falls-to-7-6.html?hp
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"Progress is often just a good idea away." (John C. Maxwell)
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So "employers" increased their payrolls by 88,000 last month, compared with 268,000 in February based on Labor Department data released today. This is the slowest pace since last June and half of what economists expected. But, then again, we're talking about "economists."
The "Spring Swoon:" this is what economists have started calling a drop in employment at this time of year since it is the third consecutive year that it has happened.
According to Steve Blitz (director and chief economist at ITG Investment Research), this data underscores what their information is indicating: "...a growing but not accelerating economy."
The unemployment rate (which comes from a different survey) dropped down to 7.6% from 7.7% but, as Catherine Rampell says, "...primarily because more people dropped out of the labor force, not because more people got jobs."
The "Labor Force Participation Rate" has not been this low - 63.3% - since 1979. That's 1979! Again, according to Catherine Rampell, 1979 was "...a time when women were less likely to be working." Dropping out has everything to do with discouragement about job prospects in a mediocre economy and that's a major force here.
"Sequestration," a term that only government could come up with, has NOT caused the current weak numbers. Government employment actually "rose" in March. (That's a "net" number since the Post Office did lay off 12,000 people) Sequestration is not expected to play into the overall numbers until September. Weak retail numbers, based on the assumption that consumers are spending less in reaction to the expiration of the payroll tax cut, factored in as expected.
When you look at the mix of jobs that have been lost versus jobs that have been added over the past few years, the majority of jobs lost during the downturn were in the middle range of wages and the majority of those added during the "recovery" (is that what we're in?) have been low paying (per the National Employment Law Project). Not even the same people.
So, I'll believe we're in a "recovery" when the Fed decides to raise interest rates because unemployment is down to 5%. Until then, no.
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"Progress is often just a good idea away." (John C. Maxwell)
***************
So "employers" increased their payrolls by 88,000 last month, compared with 268,000 in February based on Labor Department data released today. This is the slowest pace since last June and half of what economists expected. But, then again, we're talking about "economists."
The "Spring Swoon:" this is what economists have started calling a drop in employment at this time of year since it is the third consecutive year that it has happened.
According to Steve Blitz (director and chief economist at ITG Investment Research), this data underscores what their information is indicating: "...a growing but not accelerating economy."
The unemployment rate (which comes from a different survey) dropped down to 7.6% from 7.7% but, as Catherine Rampell says, "...primarily because more people dropped out of the labor force, not because more people got jobs."
The "Labor Force Participation Rate" has not been this low - 63.3% - since 1979. That's 1979! Again, according to Catherine Rampell, 1979 was "...a time when women were less likely to be working." Dropping out has everything to do with discouragement about job prospects in a mediocre economy and that's a major force here.
"Sequestration," a term that only government could come up with, has NOT caused the current weak numbers. Government employment actually "rose" in March. (That's a "net" number since the Post Office did lay off 12,000 people) Sequestration is not expected to play into the overall numbers until September. Weak retail numbers, based on the assumption that consumers are spending less in reaction to the expiration of the payroll tax cut, factored in as expected.
When you look at the mix of jobs that have been lost versus jobs that have been added over the past few years, the majority of jobs lost during the downturn were in the middle range of wages and the majority of those added during the "recovery" (is that what we're in?) have been low paying (per the National Employment Law Project). Not even the same people.
So, I'll believe we're in a "recovery" when the Fed decides to raise interest rates because unemployment is down to 5%. Until then, no.
Thursday, April 4, 2013
The Continuing Soap Opera @ HP
http://www.nytimes.com/reuters/2013/04/04/business/04reuters-hp-chairman.html?ref=business
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"Advice is seldom welcome, and those who need it most like it the least." (Samuel Johnson)
***************
Perhaps our "saying" applies to Ray Lane who is giving up his title as Chairman of the Board at HP. Among other things, Lane has come under fire for his role in the "botched," costly acquisition of British software company Autonomy Plc. Lane will remain on HP's board.
Today's announcement comes weeks after Lane, Kleiner Perkins managing partner, narrowly won reelection at HP's annual shareholder's meeting.
According to the NY Times, director and activist Ralph Whitworth will become interim chairman.
Under the "Wait, There's More" category heading, HP says that it is looking for a "non-executive board chairman" to replace Lane. For anyone with any experience at this level, what that means is that Whitworth is looking for a chairperson with no teeth who will be happy to "preside" at board meetings without any real responsibilities. Anybody qualified for that job is not qualified. So they'd fit right in.
But wait, there's more. The position of "lead independent director" is being eliminated. Since Rajiv Gupta was that person, I'm sure he's relieved to find out that he is still on the board and is now chairman of the audit committee.
So what has "The Gang That Couldn't Shoot Straight" accomplished over the past few years? After 3 years of booking net income of between $7 billion and $9 billion, HP suffered an annual loss of $12.65 billion in 2012. The "loss" was caused by the incurring of after tax costs of $20.7 billion, or $10.46 per diluted share, related to the impairment of goodwill and purchased intangible assets, restructuring charges, amortization of purchased intangible assets, charges relating to the wind down of non-strategic businesses, and acquisition-related charges. This is what you say in accounting language when you paid $8 billion too much for "Autonomy."
The problems go back before last year. In the last two years, HP has written off more than $17 billion to account for three acquisitions that didn't turn out so well: technology consulting service EDS, device maker Palm and business software maker Autonomy.
In addition to the recent write-downs, HP has also had to overcome a continuing decline in personal computer sales. Half of HP's revenue comes from two divisions: personal computers and printers. Both are in a long term decline. That's why HP has been trying to change from a hardware company to a software and services company over several years. Poor choices and top management turnover have literally caused them to fail. Plus, they face stiff competition from three companies that already occupy the market space that HP has aspired to: IBM, Oracle and SAP.
Meg Whitman, HP's CEO, recently stated that the new restructuring strategy will pay off in 2014. So, I guess that leaves this year out.
Is it possible to take a great company and mess it up any worse than this?
***************
"Advice is seldom welcome, and those who need it most like it the least." (Samuel Johnson)
***************
Perhaps our "saying" applies to Ray Lane who is giving up his title as Chairman of the Board at HP. Among other things, Lane has come under fire for his role in the "botched," costly acquisition of British software company Autonomy Plc. Lane will remain on HP's board.
Today's announcement comes weeks after Lane, Kleiner Perkins managing partner, narrowly won reelection at HP's annual shareholder's meeting.
According to the NY Times, director and activist Ralph Whitworth will become interim chairman.
Under the "Wait, There's More" category heading, HP says that it is looking for a "non-executive board chairman" to replace Lane. For anyone with any experience at this level, what that means is that Whitworth is looking for a chairperson with no teeth who will be happy to "preside" at board meetings without any real responsibilities. Anybody qualified for that job is not qualified. So they'd fit right in.
But wait, there's more. The position of "lead independent director" is being eliminated. Since Rajiv Gupta was that person, I'm sure he's relieved to find out that he is still on the board and is now chairman of the audit committee.
So what has "The Gang That Couldn't Shoot Straight" accomplished over the past few years? After 3 years of booking net income of between $7 billion and $9 billion, HP suffered an annual loss of $12.65 billion in 2012. The "loss" was caused by the incurring of after tax costs of $20.7 billion, or $10.46 per diluted share, related to the impairment of goodwill and purchased intangible assets, restructuring charges, amortization of purchased intangible assets, charges relating to the wind down of non-strategic businesses, and acquisition-related charges. This is what you say in accounting language when you paid $8 billion too much for "Autonomy."
The problems go back before last year. In the last two years, HP has written off more than $17 billion to account for three acquisitions that didn't turn out so well: technology consulting service EDS, device maker Palm and business software maker Autonomy.
In addition to the recent write-downs, HP has also had to overcome a continuing decline in personal computer sales. Half of HP's revenue comes from two divisions: personal computers and printers. Both are in a long term decline. That's why HP has been trying to change from a hardware company to a software and services company over several years. Poor choices and top management turnover have literally caused them to fail. Plus, they face stiff competition from three companies that already occupy the market space that HP has aspired to: IBM, Oracle and SAP.
Meg Whitman, HP's CEO, recently stated that the new restructuring strategy will pay off in 2014. So, I guess that leaves this year out.
Is it possible to take a great company and mess it up any worse than this?
Saturday, March 30, 2013
Some Good News
http://www.nytimes.com/2013/03/31/your-money/a-muted-recovery-may-mean-a-longer-bull-market.html?ref=business
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"You are today where your thoughts have brought you. You will be tomorrow where your thoughts take you." (James Allen)
***************
So, on Thursday, at the end of a trading week shortened by the Good Friday holiday, the S&P 500 Stock Index closed at a record high. According to Paul Lim, the current "Bull Market" turned 4 years old this month.
This usually means a "market correction" except that the average bull market "peak" since WW II saw GDP growth at an average annual rate of 4.2%. That does not correlate with the most recent GDP growth rate of .4%.
Market peaks also tend to show other characteristics like unemployment falling below 5%. Well, that doesn't work either since the current rate is at 7.7%. The Fed has a goal of keeping interest rates practically non-existent until the unemployment rate hits 6.5%. Normally, it's the Fed that kills bull markets by raising interest rates.
U.S. consumers increased spending in February. More spending by consumers should boost economic growth in the January thru March quarter. After seeing Friday's report on consumer spending, Paul Ashworth, chief U.S. economist at Capital Economics, raised his growth forecast for the first quarter by a full percentage point. Ashworth now expects U.S. growth in the first quarter to increase at an annual rate of 3%.
Happy Easter!
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"You are today where your thoughts have brought you. You will be tomorrow where your thoughts take you." (James Allen)
***************
So, on Thursday, at the end of a trading week shortened by the Good Friday holiday, the S&P 500 Stock Index closed at a record high. According to Paul Lim, the current "Bull Market" turned 4 years old this month.
This usually means a "market correction" except that the average bull market "peak" since WW II saw GDP growth at an average annual rate of 4.2%. That does not correlate with the most recent GDP growth rate of .4%.
Market peaks also tend to show other characteristics like unemployment falling below 5%. Well, that doesn't work either since the current rate is at 7.7%. The Fed has a goal of keeping interest rates practically non-existent until the unemployment rate hits 6.5%. Normally, it's the Fed that kills bull markets by raising interest rates.
U.S. consumers increased spending in February. More spending by consumers should boost economic growth in the January thru March quarter. After seeing Friday's report on consumer spending, Paul Ashworth, chief U.S. economist at Capital Economics, raised his growth forecast for the first quarter by a full percentage point. Ashworth now expects U.S. growth in the first quarter to increase at an annual rate of 3%.
Happy Easter!
Friday, March 22, 2013
The Invisible Boom
http://www.nytimes.com/interactive/2013/03/22/business/The-Invisible-Boom.html?_r=0
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"The truth is that you can spend your life any way you want, but you can spend it only once." (John C. Maxwell)
***************
Housing starts are rising at the fastest rate in more than 25 years. But, the level is so low that the gains are having only a minor impact on the economy: the number of new homes on the market remains at historical lows.
So, good news in the bad news. And, the direction is dramatically "up" for the good news.
Over the last 12 months, 551,000 single-family units were started, and an additional 255,000 multifamily units. As shown in the charts attached, that was an increase of 28% from a year earlier. That's good but it needs to keep going.
Some of the top economists from Moody's Analytics were in Dallas yesterday and their perspective was that the housing rebound will counterbalance the effects of the Washington budget problems and the European debt issues. They also indicated that Texas would "continue" to outperform the rest of the country when it comes to adding jobs and economic growth.
Moody's predicts that economic growth will remain modest nationwide in 2013 before ramping up next year. They are more positive about the economy in 2014 & 2015 in large part due to the housing market.
Mark Zandi, the Moody's economist most well known for having predicted the overheated housing market and the worldwide recession, now is very positive about housing and the economy. He says of himself that he is more "optimistic than the consensus" (of economists). He sees record corporate profits and a resurgence in the housing market as supportive of increased consumer confidence.
Now, we just need to watch the Fed. And, the Fed is watching the unemployment rate. Money stays "easy" until the unemployment rate gets down to 6.5%. Then, interest rates start up. We'll see what happens then.
***************
"The truth is that you can spend your life any way you want, but you can spend it only once." (John C. Maxwell)
***************
Housing starts are rising at the fastest rate in more than 25 years. But, the level is so low that the gains are having only a minor impact on the economy: the number of new homes on the market remains at historical lows.
So, good news in the bad news. And, the direction is dramatically "up" for the good news.
Over the last 12 months, 551,000 single-family units were started, and an additional 255,000 multifamily units. As shown in the charts attached, that was an increase of 28% from a year earlier. That's good but it needs to keep going.
Some of the top economists from Moody's Analytics were in Dallas yesterday and their perspective was that the housing rebound will counterbalance the effects of the Washington budget problems and the European debt issues. They also indicated that Texas would "continue" to outperform the rest of the country when it comes to adding jobs and economic growth.
Moody's predicts that economic growth will remain modest nationwide in 2013 before ramping up next year. They are more positive about the economy in 2014 & 2015 in large part due to the housing market.
Mark Zandi, the Moody's economist most well known for having predicted the overheated housing market and the worldwide recession, now is very positive about housing and the economy. He says of himself that he is more "optimistic than the consensus" (of economists). He sees record corporate profits and a resurgence in the housing market as supportive of increased consumer confidence.
Now, we just need to watch the Fed. And, the Fed is watching the unemployment rate. Money stays "easy" until the unemployment rate gets down to 6.5%. Then, interest rates start up. We'll see what happens then.
Thursday, March 14, 2013
Why Technology Is No Longer Creating Jobs
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3211#.UUHA34mR40w.email
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"Good thinkers are always in demand. A person who knows how may always have a job, but the person who knows why will always be his boss." (John C. Maxwell)
***************
In an article published yesterday, "K@W" recounts the result of a recent panel discussion involving four prominent economists assembled to explore the link between technology and job creation: the consensus outlook was "bearish."
Quoting Eric Brynjolfsson (a professor at MIT's Sloan School of Management and director of the MIT Center for Digital Business): he "...compared the market capitalization and payrolls of four of the biggest tech companies. His conclusion: While the companies had astronomical values on Wall Street, their job production was minimal...The four -- Apple, Amazon, Facebook and Google -- at the time had a market cap in the neighborhood of $1 trillion, which is roughly 6.25% of the combined market cap of all U.S. companies. But the four employ about 190,000 people, fewer than the number of jobs the U.S. economy needs to add approximately every six weeks to just keep pace with population growth." The implication is that "...even hugely successful tech companies cannot be counted on to create the kinds of jobs the economy needs."
One of my favorite concepts is "creative destruction." It's from Joseph Schumpeter, an economist who created that term long ago. His idea was that technology causes some jobs to disappear while bringing others into existence, but, quoting Brynjolfsson again: "...the last 10 years have been different. Technology simply hasn't been creating jobs as it did before...It's a double-barreled effect ... Not only are today's technology companies creating fewer jobs, but the products they make, notably computerized automation equipment, often lead to further job losses in other parts of the economy. These second-effect job losses are further encouraged by off-shoring and the declining power of labor unions."
I might add here that there is also "creative non-destruction" which is a term I use to describe government regulators who want to intervene to keep proposed mergers from happening because the combination might cause "monopolistic" behavior. How about price optimization and productivity improvement which, incidentally, helps everybody?! Of course, government regulators have a tendency to practice "Zombie Economics" which emphasizes such principles as: there should be a certain "number" of companies in any industry otherwise it's a "de facto" monopoly situation. Check the American/U.S. Airways merger where the new company will be told it has to get rid of certain "routes" or the government will fight the deal.
Michael Chui, another participant in the Wharton conference, and a key player at the McKinsey Global Institute, said that "employment transparency" has become a crucial issue for college students attempting to pick a field of study: "They need to know where the jobs of tomorrow are likely to be, but the data is not available to them during the period of their lives when they are making decisions that will weigh most heavily on their career options."
Chui went on to make a couple of other crucial points: he said the U.S. needs to increase the number of college graduates studying science, technology, engineering and mathematics, the so-called "STEM" curriculum: "More than 40% of China's college population are in a STEM field, and the figure in Germany is 28%. But in the United States, it's 15%." Further, "Even within STEM ... priorities may need to be re-adjusted. For example, a traditional elite education typically includes a healthy dose of calculus. But perhaps statistics should receive more attention because of the need for future managers to be able to more intelligently use the huge mountains of data now being routinely collected by businesses."
Wharton does an exceptional job of summarizing the discussions at this conference and I will be spending time reviewing a new book by Enrico Moretti (an economics professor at the University of California, Berkeley), one of the panelists, called The New Geography of Jobs where he breaks down the labor markets in the United States into winners, losers and fate yet to be determined.
The bottom line is that these people are coping with the future and the article is worth reading!
***************
"Good thinkers are always in demand. A person who knows how may always have a job, but the person who knows why will always be his boss." (John C. Maxwell)
***************
In an article published yesterday, "K@W" recounts the result of a recent panel discussion involving four prominent economists assembled to explore the link between technology and job creation: the consensus outlook was "bearish."
Quoting Eric Brynjolfsson (a professor at MIT's Sloan School of Management and director of the MIT Center for Digital Business): he "...compared the market capitalization and payrolls of four of the biggest tech companies. His conclusion: While the companies had astronomical values on Wall Street, their job production was minimal...The four -- Apple, Amazon, Facebook and Google -- at the time had a market cap in the neighborhood of $1 trillion, which is roughly 6.25% of the combined market cap of all U.S. companies. But the four employ about 190,000 people, fewer than the number of jobs the U.S. economy needs to add approximately every six weeks to just keep pace with population growth." The implication is that "...even hugely successful tech companies cannot be counted on to create the kinds of jobs the economy needs."
One of my favorite concepts is "creative destruction." It's from Joseph Schumpeter, an economist who created that term long ago. His idea was that technology causes some jobs to disappear while bringing others into existence, but, quoting Brynjolfsson again: "...the last 10 years have been different. Technology simply hasn't been creating jobs as it did before...It's a double-barreled effect ... Not only are today's technology companies creating fewer jobs, but the products they make, notably computerized automation equipment, often lead to further job losses in other parts of the economy. These second-effect job losses are further encouraged by off-shoring and the declining power of labor unions."
I might add here that there is also "creative non-destruction" which is a term I use to describe government regulators who want to intervene to keep proposed mergers from happening because the combination might cause "monopolistic" behavior. How about price optimization and productivity improvement which, incidentally, helps everybody?! Of course, government regulators have a tendency to practice "Zombie Economics" which emphasizes such principles as: there should be a certain "number" of companies in any industry otherwise it's a "de facto" monopoly situation. Check the American/U.S. Airways merger where the new company will be told it has to get rid of certain "routes" or the government will fight the deal.
Michael Chui, another participant in the Wharton conference, and a key player at the McKinsey Global Institute, said that "employment transparency" has become a crucial issue for college students attempting to pick a field of study: "They need to know where the jobs of tomorrow are likely to be, but the data is not available to them during the period of their lives when they are making decisions that will weigh most heavily on their career options."
Chui went on to make a couple of other crucial points: he said the U.S. needs to increase the number of college graduates studying science, technology, engineering and mathematics, the so-called "STEM" curriculum: "More than 40% of China's college population are in a STEM field, and the figure in Germany is 28%. But in the United States, it's 15%." Further, "Even within STEM ... priorities may need to be re-adjusted. For example, a traditional elite education typically includes a healthy dose of calculus. But perhaps statistics should receive more attention because of the need for future managers to be able to more intelligently use the huge mountains of data now being routinely collected by businesses."
Wharton does an exceptional job of summarizing the discussions at this conference and I will be spending time reviewing a new book by Enrico Moretti (an economics professor at the University of California, Berkeley), one of the panelists, called The New Geography of Jobs where he breaks down the labor markets in the United States into winners, losers and fate yet to be determined.
The bottom line is that these people are coping with the future and the article is worth reading!
Friday, March 8, 2013
Job Creation
http://www.nytimes.com/2013/03/09/business/economy/us-added-236000-jobs-in-february.html?ref=business&_r=0
***************
"Every child is an artist. The problem is how to remain an artist once he grows up." (Pablo Picasso)
***************
We have to be grateful for the "good news" in whatever form it takes when dealing with the U.S. economy. According to today's "Times," the American economy created 236,000 positions in February and the unemployment rate was 7.7% (compared with 7.9% for January). "Economists," and I use that term loosely, had expected 165,000 jobs to be added in February with no movement in the unemployment rate.
The problem is that the federal budget cuts went into effect March 1, so they are not reflected in the February data. The "236,000" number above reflects an actual private payroll addition of 246,000 jobs minus 10,000 public sector jobs that have already been eliminated.
The Hamilton Project has created a "Jobs Gap" chart which tracks what a real recovery would entail: the U.S. faces a jobs gap of 11.4 million jobs, 5.2 million from jobs lost since 2007, and another 6.1 million jobs that should have been created in the absence of the recession. Looking at The Hamilton Project trend line projections, if the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, it will take until February, 2020 - 8 years - to close the jobs gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate for the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by April, 2016 - not for another 4 years.
Looked at in this perspective, any good news is welcome but there is much progress that's needed. Cutting government jobs would not appear to be in the interest of reducing unemployment rates or increasing GDP growth. Of course, I'm not an economist or a politician, thankfully.
***************
"Every child is an artist. The problem is how to remain an artist once he grows up." (Pablo Picasso)
***************
We have to be grateful for the "good news" in whatever form it takes when dealing with the U.S. economy. According to today's "Times," the American economy created 236,000 positions in February and the unemployment rate was 7.7% (compared with 7.9% for January). "Economists," and I use that term loosely, had expected 165,000 jobs to be added in February with no movement in the unemployment rate.
The problem is that the federal budget cuts went into effect March 1, so they are not reflected in the February data. The "236,000" number above reflects an actual private payroll addition of 246,000 jobs minus 10,000 public sector jobs that have already been eliminated.
The Hamilton Project has created a "Jobs Gap" chart which tracks what a real recovery would entail: the U.S. faces a jobs gap of 11.4 million jobs, 5.2 million from jobs lost since 2007, and another 6.1 million jobs that should have been created in the absence of the recession. Looking at The Hamilton Project trend line projections, if the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, it will take until February, 2020 - 8 years - to close the jobs gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate for the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by April, 2016 - not for another 4 years.
Looked at in this perspective, any good news is welcome but there is much progress that's needed. Cutting government jobs would not appear to be in the interest of reducing unemployment rates or increasing GDP growth. Of course, I'm not an economist or a politician, thankfully.
Friday, March 1, 2013
Hold the Presses
http://www.nytimes.com/2013/03/01/business/economy/us-economy-barely-grew-in-fourth-quarter-revision-shows.html
http://www.nytimes.com/interactive/2013/02/22/business/Growth-Vanishes-in-Developed-Economies.html
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"A strategy that doesn't take into account resources is doomed to failure." (John C. Maxwell)
***************
Hold the presses! Wait for it! The Commerce Department has "revised" 4th quarter 2012 U.S. economic growth from its initial estimate of -0.1% (annual rate of GDP growth) to +0.1%. I, for one, cannot contain myself!
But, as Catherine Rampell pointed out: "...at least the economy did not shrink..."
If you place the U.S. data into the 34 country O.E.C.D. "Change In Real GDP" chart attached, "Growth Vanishes" is the perfect title for the situation. The combined economies of those 34 countries shrank in the fourth quarter of 2012. That's the first time since the worldwide financial crisis and only the 13th quarter with such a downturn since 1961.
Fortunately, I posted Jeremy Siegel's perspective yesterday from K@W where he observed, among other things, that the U.S. economy could be growing at 3% to 4% by the fourth quarter of this year even with the "sequester." With corporate earnings at all time record levels and a Dow that could go as high as 15,000 by year end, it's hard to argue with his perspective.
I choose to think positive.
http://www.nytimes.com/interactive/2013/02/22/business/Growth-Vanishes-in-Developed-Economies.html
***************
"A strategy that doesn't take into account resources is doomed to failure." (John C. Maxwell)
***************
Hold the presses! Wait for it! The Commerce Department has "revised" 4th quarter 2012 U.S. economic growth from its initial estimate of -0.1% (annual rate of GDP growth) to +0.1%. I, for one, cannot contain myself!
But, as Catherine Rampell pointed out: "...at least the economy did not shrink..."
If you place the U.S. data into the 34 country O.E.C.D. "Change In Real GDP" chart attached, "Growth Vanishes" is the perfect title for the situation. The combined economies of those 34 countries shrank in the fourth quarter of 2012. That's the first time since the worldwide financial crisis and only the 13th quarter with such a downturn since 1961.
Fortunately, I posted Jeremy Siegel's perspective yesterday from K@W where he observed, among other things, that the U.S. economy could be growing at 3% to 4% by the fourth quarter of this year even with the "sequester." With corporate earnings at all time record levels and a Dow that could go as high as 15,000 by year end, it's hard to argue with his perspective.
I choose to think positive.
Thursday, February 28, 2013
Wharton: Why Stocks Are the Best Bet
http://knowledge.wharton.upenn.edu/article.cfm?articleid=3196#.US66Xi8kAw0.email
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"To doubt everything or to believe everything are two equally convenient solutions; both dispense with the necessity of reflection." (Jules Henri Poincare')
***************
The Wharton School does an interview with Jeremy Siegel around this time each year to talk about the investment environment. Siegel is considered by many to be the best at what he does. The article from K@W, inclusive of a video of the interview, is attached.
I have more confidence in what's going to be happening in 2013 as a result of what Siegel has to say: assuming nothing is done about the "sequester" by this Friday, he sees U.S. GDP growth dropping .5% for the year. So what? Good point.
He sees the Case-Shiller home price index going up as a very positive sign of a good year to come. This would be the time to buy a house or a second home - mortgage rates are at an all time low.
Bonds are a disaster - they're not worth buying. Stocks are paying 3% to 4% dividends. Earnings are at all time highs. He thinks it's possible that the Dow could hit 15,000 by the end of this year.
Given the above, Siegel sees the U.S. GDP growth rate hitting 3% to 4% at year end 2013.
And, of course, "gold" is priced for the end of the world.
Read or listen for yourself.
***************
"To doubt everything or to believe everything are two equally convenient solutions; both dispense with the necessity of reflection." (Jules Henri Poincare')
***************
The Wharton School does an interview with Jeremy Siegel around this time each year to talk about the investment environment. Siegel is considered by many to be the best at what he does. The article from K@W, inclusive of a video of the interview, is attached.
I have more confidence in what's going to be happening in 2013 as a result of what Siegel has to say: assuming nothing is done about the "sequester" by this Friday, he sees U.S. GDP growth dropping .5% for the year. So what? Good point.
He sees the Case-Shiller home price index going up as a very positive sign of a good year to come. This would be the time to buy a house or a second home - mortgage rates are at an all time low.
Bonds are a disaster - they're not worth buying. Stocks are paying 3% to 4% dividends. Earnings are at all time highs. He thinks it's possible that the Dow could hit 15,000 by the end of this year.
Given the above, Siegel sees the U.S. GDP growth rate hitting 3% to 4% at year end 2013.
And, of course, "gold" is priced for the end of the world.
Read or listen for yourself.
Wednesday, February 27, 2013
Shell's Arctic Drilling
http://www.nytimes.com/2013/02/28/business/energy-environment/shell-suspends-arctic-drilling-for-2013.html?ref=business
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"If you want to be successful tomorrow, you need to think bottom line today." (John C. Maxwell)
***************
So, what was Royal Dutch Shell thinking? In an effort to drill exploratory wells off the north coast of Alaska last year, Shell suffered a series of costly and embarrassing accidents. They announced today that they would not be returning to the Arctic in 2013.
How about if they don't return to the Arctic at all?
First of all, if your goal was to prove to the people who were against you drilling in the Arctic that you really were incapable of doing it cleanly and safely, you did it. And, you've made the case that no other oil company should be allowed to drill there either - I'm not sure what that means for the Exxon/Rosneft JV that's headed there.
Here's a quote: "Our decision to pause in 2013 will give us time to ensure the readiness of all our equipment and people." Well, why weren't you ready in the first place?
Shell now acknowledges that the venture has been much more difficult than anticipated. Shell had planned to drill 10 wells in 2012 but was able to start only two. Listen to this: "Federal regulators barred the company from drilling into oil-bearing formations because it did not have adequate spill prevention and cleanup equipment available." Shell spent $4.5 billion in leases and equipment (and several years in an intensive lobbying campaign to persuade federal officials that it could drill safely) and they didn't have the appropriate equipment? Seriously, this is financially irresponsible and incompetent.
I have nothing against Shell but really?
***************
"If you want to be successful tomorrow, you need to think bottom line today." (John C. Maxwell)
***************
So, what was Royal Dutch Shell thinking? In an effort to drill exploratory wells off the north coast of Alaska last year, Shell suffered a series of costly and embarrassing accidents. They announced today that they would not be returning to the Arctic in 2013.
How about if they don't return to the Arctic at all?
First of all, if your goal was to prove to the people who were against you drilling in the Arctic that you really were incapable of doing it cleanly and safely, you did it. And, you've made the case that no other oil company should be allowed to drill there either - I'm not sure what that means for the Exxon/Rosneft JV that's headed there.
Here's a quote: "Our decision to pause in 2013 will give us time to ensure the readiness of all our equipment and people." Well, why weren't you ready in the first place?
Shell now acknowledges that the venture has been much more difficult than anticipated. Shell had planned to drill 10 wells in 2012 but was able to start only two. Listen to this: "Federal regulators barred the company from drilling into oil-bearing formations because it did not have adequate spill prevention and cleanup equipment available." Shell spent $4.5 billion in leases and equipment (and several years in an intensive lobbying campaign to persuade federal officials that it could drill safely) and they didn't have the appropriate equipment? Seriously, this is financially irresponsible and incompetent.
I have nothing against Shell but really?
Tuesday, February 26, 2013
Bernanke Defending Stimulus Efforts
http://www.nytimes.com/2013/02/27/business/economy/fed-chairman-defends-stimulus-efforts.html?ref=business
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"The man who is prepared has his battle half fought." (Miguel de Cervantes)
***************
In testimony before the Senate Banking Committee, Fed Chairman Ben Bernanke urged Congress and the Obama administration to replace the budget cuts scheduled to begin this Friday with a plan to reduce federal deficits more gradually.
It doesn't appear that either party has any intention of proposing an alternative to "sequestration" but it was important to hear Bernanke reiterate his intention to continue the Fed's bond buying program until the unemployment rate goes down to 6.5%. I don't think the U.S. has had anything historically to match what Bernanke's doing with the "link" to unemployment.
There are two things I watch with the economy: home sales and unemployment. The WSJ reports today that new-home sales posted the biggest monthly jump in nearly 20 years last month, reaching the highest level since 2008. The most prestigious report on "housing," the S&P Case-Shiller home price index grew 5.9% (10 city index) and 6.8% (20 city index) compared with a year earlier.
In a separate report, the Federal Housing Finance Agency said U.S. home prices rose for the 11th consecutive month in December.
In a separate interview, Robert Shiller, co-creator of the S&P/Case-Shiller index that bears his name, said that he's hopeful about the housing signals but part of the reason the indexes have gone up is the the sale of "foreclosed homes" has gone down which is a good sign in and of itself, but also a reason why the "average" home price has gone up.
Even for Shiller, home prices are very hard to predict. His guess is that prices could go up 1% to 2% per year for the next 5 years. But, it's a market with "risk" in it.
That's why Ben Bernanke continues to have an unemployment goal in his economic stimulus campaign.
***************
"The man who is prepared has his battle half fought." (Miguel de Cervantes)
***************
In testimony before the Senate Banking Committee, Fed Chairman Ben Bernanke urged Congress and the Obama administration to replace the budget cuts scheduled to begin this Friday with a plan to reduce federal deficits more gradually.
It doesn't appear that either party has any intention of proposing an alternative to "sequestration" but it was important to hear Bernanke reiterate his intention to continue the Fed's bond buying program until the unemployment rate goes down to 6.5%. I don't think the U.S. has had anything historically to match what Bernanke's doing with the "link" to unemployment.
There are two things I watch with the economy: home sales and unemployment. The WSJ reports today that new-home sales posted the biggest monthly jump in nearly 20 years last month, reaching the highest level since 2008. The most prestigious report on "housing," the S&P Case-Shiller home price index grew 5.9% (10 city index) and 6.8% (20 city index) compared with a year earlier.
In a separate report, the Federal Housing Finance Agency said U.S. home prices rose for the 11th consecutive month in December.
In a separate interview, Robert Shiller, co-creator of the S&P/Case-Shiller index that bears his name, said that he's hopeful about the housing signals but part of the reason the indexes have gone up is the the sale of "foreclosed homes" has gone down which is a good sign in and of itself, but also a reason why the "average" home price has gone up.
Even for Shiller, home prices are very hard to predict. His guess is that prices could go up 1% to 2% per year for the next 5 years. But, it's a market with "risk" in it.
That's why Ben Bernanke continues to have an unemployment goal in his economic stimulus campaign.
Saturday, February 23, 2013
Defending Keystone XL
http://www.nytimes.com/2013/02/19/opinion/nocera-how-not-to-fix-climate-change.html?_r=0
http://www.nytimes.com/2013/02/23/opinion/arguing-about-the-keystone-pipeline.html?ref=opinion
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"Strategic thinking is the bridge that links where you are to where you want to be." (John C. Maxwell)
***************
Trying to summarize the Keystone XL pipeline issue is next to impossible but I thought Joe Nocera (who is pretty good at doing that on many different issues) did a pretty good job.
I guess we no longer refer to the Keystone XL pipeline as "Keystone XL II" because that's what it is. The original Keystone XL pipeline exists and it works. The proposed second pipeline would simply double (roughly) the volume of oil flowing from Canada to the Gulf. These people know what they're doing.
Keystone II was held up in the Secretary of State's office for three years (!) while "experts" dallied with changes to make it "safe." I think (my memory is getting hazy now with time passing) Keystone agreed to over "50" changes in it's proposal for "Keystone II" so the state department politicians could be satisfied. These were not small changes: one involved putting the pipeline 4 feet underground. So, the state department approved and sent the proposal on to the President who evidently thought that it was too close to elections to risk approving so he said it needed more study. The he (the President) "approved" the southern portion of the pipeline from Cushing, Oklahoma to the Gulf prior to elections (that's $7 billion). I guess that portion didn't need "more study."
According to Nocera, Keystone is back in the news because the State of Nebraska, which had previously opposed the pipeline, recently dropped its opposition after TransCanada, the company hoping to build it, rerouted portions of it to avoid sensitive lands and aquifers: "Canada, still miffed by Obama's rejection of the pipeline last year, is threatening to sell the oil to China if the U.S. says no again."
As I recall, we've had a Presidential election. I recall, as well, that Bill Clinton, former President and an Obama supporter, predicted prior to the election that President Obama would approve the pipeline "after" the election. We're waiting.
In the meantime, the New York Times has published letters from prominent people disagreeing with Nocera's position that the pipeline needs "approval.". In a letter from Richard Ottinger (who is dean emeritus of Pace University Law School and a former Democratic member of the House of Representatives from New York), it was pointed out that tar sands are among the dirtiest and highest polluting fuels and they emit the most greenhouse gases. He goes on to say: "If this tar sands project isn't stopped, how are we ever going to get a handle on climate change and air pollution? China is already asphyxiating its population with coal and is trying hard to alleviate the problem. I can't see the Chinese adding tar sands to the misery of their people and risking popular protests."
Really. China is scouring the world for oil. If they get the oil, they will use it.
And a small technical point: much of the refinery capacity along the U.S. Gulf coast is made for heavy oil. The investment is already there. Those refineries "crack" Venezuela's heavy crude.
So, what was this decision delay about again? Was it "politics?"
http://www.nytimes.com/2013/02/23/opinion/arguing-about-the-keystone-pipeline.html?ref=opinion
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"Strategic thinking is the bridge that links where you are to where you want to be." (John C. Maxwell)
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Trying to summarize the Keystone XL pipeline issue is next to impossible but I thought Joe Nocera (who is pretty good at doing that on many different issues) did a pretty good job.
I guess we no longer refer to the Keystone XL pipeline as "Keystone XL II" because that's what it is. The original Keystone XL pipeline exists and it works. The proposed second pipeline would simply double (roughly) the volume of oil flowing from Canada to the Gulf. These people know what they're doing.
Keystone II was held up in the Secretary of State's office for three years (!) while "experts" dallied with changes to make it "safe." I think (my memory is getting hazy now with time passing) Keystone agreed to over "50" changes in it's proposal for "Keystone II" so the state department politicians could be satisfied. These were not small changes: one involved putting the pipeline 4 feet underground. So, the state department approved and sent the proposal on to the President who evidently thought that it was too close to elections to risk approving so he said it needed more study. The he (the President) "approved" the southern portion of the pipeline from Cushing, Oklahoma to the Gulf prior to elections (that's $7 billion). I guess that portion didn't need "more study."
According to Nocera, Keystone is back in the news because the State of Nebraska, which had previously opposed the pipeline, recently dropped its opposition after TransCanada, the company hoping to build it, rerouted portions of it to avoid sensitive lands and aquifers: "Canada, still miffed by Obama's rejection of the pipeline last year, is threatening to sell the oil to China if the U.S. says no again."
As I recall, we've had a Presidential election. I recall, as well, that Bill Clinton, former President and an Obama supporter, predicted prior to the election that President Obama would approve the pipeline "after" the election. We're waiting.
In the meantime, the New York Times has published letters from prominent people disagreeing with Nocera's position that the pipeline needs "approval.". In a letter from Richard Ottinger (who is dean emeritus of Pace University Law School and a former Democratic member of the House of Representatives from New York), it was pointed out that tar sands are among the dirtiest and highest polluting fuels and they emit the most greenhouse gases. He goes on to say: "If this tar sands project isn't stopped, how are we ever going to get a handle on climate change and air pollution? China is already asphyxiating its population with coal and is trying hard to alleviate the problem. I can't see the Chinese adding tar sands to the misery of their people and risking popular protests."
Really. China is scouring the world for oil. If they get the oil, they will use it.
And a small technical point: much of the refinery capacity along the U.S. Gulf coast is made for heavy oil. The investment is already there. Those refineries "crack" Venezuela's heavy crude.
So, what was this decision delay about again? Was it "politics?"
Friday, February 22, 2013
Sequester of Fools
http://www.nytimes.com/2013/02/22/opinion/krugman-sequester-of-fools.html?emc=eta1
http://www.nytimes.com/2013/02/21/business/budget-cuts-may-stall-economic-growth.html?emc=eta1
***************
"One good thought does not make a life. Success comes to those who have an entire mountain of gold that they continuously mine." (John C. Maxwell)
***************
The title of today's "Krugman" was just so good that I had to use it! I'm thinking that Krugman feels anything good that Congress does is by accident. Given the track record, it's hard to argue.
I didn't realize that it was just two years ago that Erskine Bowles and Alan Simpson (as co-chairmen of the debt commission) came up with a plan to deal with U.S. debt. Nobody paid attention.
So, the "sequester" was created as a threat down the road of major financial cuts (what Krugman calls a "...fiscal doomsday machine that would inflict gratuitous damage...") which would incentivize both sides to do something "reasonable" before it could happen. Except, nobody has. What a shock!
From Krugman: "Janet Yellen (vice chairwoman of the Federal Reserve) recently emphasized (that) one main reason for the sluggish recovery is that government spending has been far weaker in this business cycle than in the past. We should be spending more, not less, until we're close to full employment; the sequester is exactly what the doctor didn't order."
There would appear to be no agreement between Republicans and Democrats on this issue so, right now, the cuts will cost 700,000 jobs. It's too bad we couldn't elect people whose priority it was to save those jobs.
However; in the bad news, there is good news: according to a range of government and private forecasters, "sequestration" will reduce economic growth by one-half of a percentage point in 2013. Instead of another recession, it will just be another year of sluggish economic growth.
Quoting from Annie Lowrey's article (with Binyamin Appelbaum) which I have also attached, "Whether the government's repeated flirtation with fiscal turmoil is causing businesses to postpone or reduce planned investment is also unclear." Whether or not it's "unclear," it's happening. For those who track stalled capital investment, cash on hand at S&P 500 or Top 500 companies is at an all time high somewhere between $1.7 & $2.2 trillion. With every passing month, those numbers go higher.
Mark Zandi, chief economist for Moody's Analytics, and one of the most informed and "listened to" economists during and after the worldwide financial crisis, says that it's the nature of the sequestration cuts that is the most pernicious: "It's impossible to calculate in terms of dollars and cents what you're doing when you have mindless cuts." It's more than the money involved.
So, we're going to furlough air traffic controllers - we don't have enough of them and their entire system needs a technology update, but we're going to "furlough" some of them. That way, the ones who are left can be even more overworked! Oh, and we're going to "shrink" early childhood programs.
I have an idea: why don't we get rid of the people who decided that these were the programs that would be reduced?
http://www.nytimes.com/2013/02/21/business/budget-cuts-may-stall-economic-growth.html?emc=eta1
***************
"One good thought does not make a life. Success comes to those who have an entire mountain of gold that they continuously mine." (John C. Maxwell)
***************
The title of today's "Krugman" was just so good that I had to use it! I'm thinking that Krugman feels anything good that Congress does is by accident. Given the track record, it's hard to argue.
I didn't realize that it was just two years ago that Erskine Bowles and Alan Simpson (as co-chairmen of the debt commission) came up with a plan to deal with U.S. debt. Nobody paid attention.
So, the "sequester" was created as a threat down the road of major financial cuts (what Krugman calls a "...fiscal doomsday machine that would inflict gratuitous damage...") which would incentivize both sides to do something "reasonable" before it could happen. Except, nobody has. What a shock!
From Krugman: "Janet Yellen (vice chairwoman of the Federal Reserve) recently emphasized (that) one main reason for the sluggish recovery is that government spending has been far weaker in this business cycle than in the past. We should be spending more, not less, until we're close to full employment; the sequester is exactly what the doctor didn't order."
There would appear to be no agreement between Republicans and Democrats on this issue so, right now, the cuts will cost 700,000 jobs. It's too bad we couldn't elect people whose priority it was to save those jobs.
However; in the bad news, there is good news: according to a range of government and private forecasters, "sequestration" will reduce economic growth by one-half of a percentage point in 2013. Instead of another recession, it will just be another year of sluggish economic growth.
Quoting from Annie Lowrey's article (with Binyamin Appelbaum) which I have also attached, "Whether the government's repeated flirtation with fiscal turmoil is causing businesses to postpone or reduce planned investment is also unclear." Whether or not it's "unclear," it's happening. For those who track stalled capital investment, cash on hand at S&P 500 or Top 500 companies is at an all time high somewhere between $1.7 & $2.2 trillion. With every passing month, those numbers go higher.
Mark Zandi, chief economist for Moody's Analytics, and one of the most informed and "listened to" economists during and after the worldwide financial crisis, says that it's the nature of the sequestration cuts that is the most pernicious: "It's impossible to calculate in terms of dollars and cents what you're doing when you have mindless cuts." It's more than the money involved.
So, we're going to furlough air traffic controllers - we don't have enough of them and their entire system needs a technology update, but we're going to "furlough" some of them. That way, the ones who are left can be even more overworked! Oh, and we're going to "shrink" early childhood programs.
I have an idea: why don't we get rid of the people who decided that these were the programs that would be reduced?
Wednesday, February 20, 2013
File Clerks With College Degrees
http://www.nytimes.com/2013/02/20/business/college-degree-required-by-increasing-number-of-companies.html?nl=todaysheadlines&emc=edit_th_20130220
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"You have to think anyway, so why not think big?" (Donald Trump)
***************
As Catherine Rampell says at the start of her article in today's nytimes.com, "The college degree is becoming the new high school diploma: the new minimum requirement, albeit an expensive one, for getting even the lowest-level job."
She refers to a law firm in Atlanta that hires only people with a bachelor's degree, even for jobs that do not require college-level skills: receptionists, paralegals, administrative assistants and file clerks.
Economists refer to this as "degree inflation." So, this "up-credentialing" is pushing the less educated down the food chain. And, the unemployment rates reflect this: no more than a high school diploma - 8.1%. Bachelor's degree - 3.7% (January, 2013).
In 2011, the median male college graduate earned 1.95 times as much as the median male whose highest educational attainment was a high school diploma (in 1991, that ratio was 1.76).
While there are all sorts of interpretations of this data, my thought is that the college graduate occupying a $37,000 per year job (with $100,000 in education debt) is being compared statistically
to the high school graduate who has no job because the college graduate is actually in the high school graduate's job. Why, because we have produced more college graduates than the U.S. market needs. So, we are "long" on college graduates. Yet, we are "short" on "STEM" (Science, Technology, Engineering & Math) jobs. Hopefully, I'm close on what "STEM" means. I hate those catchy little terms.
I think that's because we don't know how to teach Math and Science anymore - in high school! And then, we have students coming into college who can't write either. So, what educational outcome is being produced by our high schools and colleges?
I have a fond memory of my high school Biology (I think it was called "College Biology") teacher (Sophomore Year) who was the equivalent of a Marine Corps Drill Instructor. I hated the guy. If you didn't know your homework, he embarrassed you. (I went to a big suburban coed high school - I didn't want to be "embarrassed.") I did everything and stayed up studying. Two things happened: I got a 95 in the course and a 95 on the New York Sate Regents' Exam. In New York, it didn't matter what your grade was in the course in high school. If you couldn't pass the state exam, you failed the course and took it over again.
I think today's approach to high school education is that we all sit around the campfire and sing songs. Then, we get promoted to the next grade with no skills and no knowledge.
Something has to change.
***************
"You have to think anyway, so why not think big?" (Donald Trump)
***************
As Catherine Rampell says at the start of her article in today's nytimes.com, "The college degree is becoming the new high school diploma: the new minimum requirement, albeit an expensive one, for getting even the lowest-level job."
She refers to a law firm in Atlanta that hires only people with a bachelor's degree, even for jobs that do not require college-level skills: receptionists, paralegals, administrative assistants and file clerks.
Economists refer to this as "degree inflation." So, this "up-credentialing" is pushing the less educated down the food chain. And, the unemployment rates reflect this: no more than a high school diploma - 8.1%. Bachelor's degree - 3.7% (January, 2013).
In 2011, the median male college graduate earned 1.95 times as much as the median male whose highest educational attainment was a high school diploma (in 1991, that ratio was 1.76).
While there are all sorts of interpretations of this data, my thought is that the college graduate occupying a $37,000 per year job (with $100,000 in education debt) is being compared statistically
to the high school graduate who has no job because the college graduate is actually in the high school graduate's job. Why, because we have produced more college graduates than the U.S. market needs. So, we are "long" on college graduates. Yet, we are "short" on "STEM" (Science, Technology, Engineering & Math) jobs. Hopefully, I'm close on what "STEM" means. I hate those catchy little terms.
I think that's because we don't know how to teach Math and Science anymore - in high school! And then, we have students coming into college who can't write either. So, what educational outcome is being produced by our high schools and colleges?
I have a fond memory of my high school Biology (I think it was called "College Biology") teacher (Sophomore Year) who was the equivalent of a Marine Corps Drill Instructor. I hated the guy. If you didn't know your homework, he embarrassed you. (I went to a big suburban coed high school - I didn't want to be "embarrassed.") I did everything and stayed up studying. Two things happened: I got a 95 in the course and a 95 on the New York Sate Regents' Exam. In New York, it didn't matter what your grade was in the course in high school. If you couldn't pass the state exam, you failed the course and took it over again.
I think today's approach to high school education is that we all sit around the campfire and sing songs. Then, we get promoted to the next grade with no skills and no knowledge.
Something has to change.
Monday, February 18, 2013
The Jobs Disaster Continues
http://online.wsj.com/article/SB10001424127887323478004578303992482199574.html?mod=WSJ_Opinion_LEFTTopOpinion
http://www.nytimes.com/2013/02/18/opinion/krugman-raise-that-wage.html?hp
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"The difficulty lies not so much in developing new ideas as in escaping from old ones." (John Maynard Keynes)
***************
Two articles struck me today: one from wsj.com and one from nytimes.com. Both were written by powerful people. I have attached both articles but I fear that wsj.com will only provide the "link" and not the content. Even though I pay for my own subscription, I guess that's not enough for the capitalists at wsj.com who are looking to make money wherever they can.
I took the title of this post from Mort Zuckerman's article in wsj.com 2/15/13. Zuckerman, as Chairman and Editor In Chief of U.S. News & World Report, has access to much more research and information than I do. His position on the gravity of the jobs problem is correct and much more detailed than I could be.
Zuckerman's position is that, after 4 years, America remains in a jobs depression as great as the Great Depression. We just don't see it every day because there aren't "bread lines" and "soup kitchens." There are 12.3 million unemployed today and there were 12.8 million unemployed in 1933.
While the population of the U.S. is much larger now, 12 million people is still 12 million people. And, as Zuckerman says, we see less today because, in this "recovery," millions of people are being assisted, out of site, by government checks, unemployment checks, Social Security disability checks and food stamps.
Zuckerman: "More than 48 million Americans are in the food-stamp program - an almost incredible record. That is 15% of the total population compared with 7.9% participation in food stamps from 1970-2000. Then there are the more than 11 million Americans who are collecting Social Security checks to compensate for disability, also a record. Half have signed on since President Obama came to office. In 1992, there was one person on disability for every 35 workers; today it is one for every 16."
Further: "The U.S. labor market, which peaked in November 2007 when there were 139,143,000 jobs, now encompasses 132,705,000 workers, a drop of 6.4 million jobs from the peak. The only work that has increased is part-time, and that is because it allows employers to reduce costs through a diminished benefit package or none at all."
As Zuckerman points out, the real unemployment rate today is not 7.9%. It's 14.5%. The 14.5% reflects the unemployed and three other categories: 8 million people who are employed part-time for economic reasons (because their hours have been cut back or because they have been unable to find a full-time job), the 10 million who have stopped looking for work, and those who are marginally attached to the workforce.
So, it typically takes 25 months to close the employment gap from the unemployment peak near the start of the downturn. Yet this time, more than 60 months after employment peaked in January 2006, nonfarm unemployment is still more than 3 million jobs below where it started.
There are many more statistics but, basically, Zuckerman has proved that America has failed on this issue and there doesn't appear to be anybody leading the way on what to do about it.
Enter the "minimum wage" which Krugman writes about today. He agrees with the President's suggestion that the minimum wage should be raised from $7.25 to $9. He thinks it's a good idea which, interestingly, runs counter to most economists and even his own textbook. The old argument that raising the minimum wage will cost jobs doesn't work anymore because there is ample evidence that, when it has been raised in one state versus another (what Krugman calls "natural experiments," ), there is no negative on employment.
It would appear that there is a Republican objection to this and, while I will not take political sides here, I'm with Krugman who, basically knows more about this than any politician.
So, overall, unemployment continues to be a disaster, but raising the minimum wage is something we can all (except many Republicans) get behind.
http://www.nytimes.com/2013/02/18/opinion/krugman-raise-that-wage.html?hp
***************
"The difficulty lies not so much in developing new ideas as in escaping from old ones." (John Maynard Keynes)
***************
Two articles struck me today: one from wsj.com and one from nytimes.com. Both were written by powerful people. I have attached both articles but I fear that wsj.com will only provide the "link" and not the content. Even though I pay for my own subscription, I guess that's not enough for the capitalists at wsj.com who are looking to make money wherever they can.
I took the title of this post from Mort Zuckerman's article in wsj.com 2/15/13. Zuckerman, as Chairman and Editor In Chief of U.S. News & World Report, has access to much more research and information than I do. His position on the gravity of the jobs problem is correct and much more detailed than I could be.
Zuckerman's position is that, after 4 years, America remains in a jobs depression as great as the Great Depression. We just don't see it every day because there aren't "bread lines" and "soup kitchens." There are 12.3 million unemployed today and there were 12.8 million unemployed in 1933.
While the population of the U.S. is much larger now, 12 million people is still 12 million people. And, as Zuckerman says, we see less today because, in this "recovery," millions of people are being assisted, out of site, by government checks, unemployment checks, Social Security disability checks and food stamps.
Zuckerman: "More than 48 million Americans are in the food-stamp program - an almost incredible record. That is 15% of the total population compared with 7.9% participation in food stamps from 1970-2000. Then there are the more than 11 million Americans who are collecting Social Security checks to compensate for disability, also a record. Half have signed on since President Obama came to office. In 1992, there was one person on disability for every 35 workers; today it is one for every 16."
Further: "The U.S. labor market, which peaked in November 2007 when there were 139,143,000 jobs, now encompasses 132,705,000 workers, a drop of 6.4 million jobs from the peak. The only work that has increased is part-time, and that is because it allows employers to reduce costs through a diminished benefit package or none at all."
As Zuckerman points out, the real unemployment rate today is not 7.9%. It's 14.5%. The 14.5% reflects the unemployed and three other categories: 8 million people who are employed part-time for economic reasons (because their hours have been cut back or because they have been unable to find a full-time job), the 10 million who have stopped looking for work, and those who are marginally attached to the workforce.
So, it typically takes 25 months to close the employment gap from the unemployment peak near the start of the downturn. Yet this time, more than 60 months after employment peaked in January 2006, nonfarm unemployment is still more than 3 million jobs below where it started.
There are many more statistics but, basically, Zuckerman has proved that America has failed on this issue and there doesn't appear to be anybody leading the way on what to do about it.
Enter the "minimum wage" which Krugman writes about today. He agrees with the President's suggestion that the minimum wage should be raised from $7.25 to $9. He thinks it's a good idea which, interestingly, runs counter to most economists and even his own textbook. The old argument that raising the minimum wage will cost jobs doesn't work anymore because there is ample evidence that, when it has been raised in one state versus another (what Krugman calls "natural experiments," ), there is no negative on employment.
It would appear that there is a Republican objection to this and, while I will not take political sides here, I'm with Krugman who, basically knows more about this than any politician.
So, overall, unemployment continues to be a disaster, but raising the minimum wage is something we can all (except many Republicans) get behind.
Wednesday, February 13, 2013
The Cost of the Recession
http://www.nytimes.com/interactive/2013/02/12/business/The-Cost-of-the-Recession.html?nl=todaysheadlines&emc=edit_th_20130213
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"If you are successful, it is because somewhere, sometime, someone gave you a life or an idea that started you off in the right direction." (Melinda Gates)
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"Potential GDP" is the Congressional Budget Office's (CBO) estimate of the maximum sustainable level of output of the economy. I have attached the color graph, along with the article that supports it, that shows how far "under" U.S. GDP growth is versus what it could have been: about $7.5 trillion in economic output.
Jacob Lew, the nominee for Treasury Secretary, testified in his confirmation hearing this morning that Senate lawmakers need to avoid $85 billion in automatic spending cuts set for March 1: "We cannot allow the series of harmful automatic spending cuts known as the sequester to go into effect on March 1. These cuts would impose self-inflicted wounds to the recovery and put far too many jobs and businesses at risk."
According to the CBO's latest forecast, GDP growth this year will average 1.4%. As measured by the CBO GDP growth trend line, by the time we recover to our potential, it will be 2017. Given this weak growth scenario, the CBO expects unemployment to remain above 7.5% through next year.
By CBO calculations, the sequester spending cuts referred to by Jacob Lew, will cut economic growth in half.
So, if I could put the thoughts of Nouriel Roubini that U.S. economic growth is generally running at "stall speed" (and I would think that the CBO-predicted 1.4% certainly qualifies) together with the March 1 sequester spending cuts that will cut economic growth in half, then what we'll have for the year 2013 is less than 1% GDP growth. I believe most economists agree that it takes U.S. GDP growth of roughly 2.5% just to stay even with new entrants into the workforce, let alone grow jobs.
Lawrence Summers, President Obama's former top economic adviser, points out that there are many profitable economic opportunities for the government to improve the nation's physical infrastructure, opportunities that would yield much more than a dollar in economic output for each dollar spent: "There is plenty of idle capacity in the construction industry - unemployed workers, unused machinery. And the government can borrow for 15 years at negative real interest rates."
This type of infrastructure spending is going to have to be done (roads and bridges) in the near future anyway. As Summers points out, not doing it now, "...burdens future generations just as surely as more debt does."
So, cutting spending does not appear to be the way to go for 2013 GDP growth.
***************
"If you are successful, it is because somewhere, sometime, someone gave you a life or an idea that started you off in the right direction." (Melinda Gates)
***************
"Potential GDP" is the Congressional Budget Office's (CBO) estimate of the maximum sustainable level of output of the economy. I have attached the color graph, along with the article that supports it, that shows how far "under" U.S. GDP growth is versus what it could have been: about $7.5 trillion in economic output.
Jacob Lew, the nominee for Treasury Secretary, testified in his confirmation hearing this morning that Senate lawmakers need to avoid $85 billion in automatic spending cuts set for March 1: "We cannot allow the series of harmful automatic spending cuts known as the sequester to go into effect on March 1. These cuts would impose self-inflicted wounds to the recovery and put far too many jobs and businesses at risk."
According to the CBO's latest forecast, GDP growth this year will average 1.4%. As measured by the CBO GDP growth trend line, by the time we recover to our potential, it will be 2017. Given this weak growth scenario, the CBO expects unemployment to remain above 7.5% through next year.
By CBO calculations, the sequester spending cuts referred to by Jacob Lew, will cut economic growth in half.
So, if I could put the thoughts of Nouriel Roubini that U.S. economic growth is generally running at "stall speed" (and I would think that the CBO-predicted 1.4% certainly qualifies) together with the March 1 sequester spending cuts that will cut economic growth in half, then what we'll have for the year 2013 is less than 1% GDP growth. I believe most economists agree that it takes U.S. GDP growth of roughly 2.5% just to stay even with new entrants into the workforce, let alone grow jobs.
Lawrence Summers, President Obama's former top economic adviser, points out that there are many profitable economic opportunities for the government to improve the nation's physical infrastructure, opportunities that would yield much more than a dollar in economic output for each dollar spent: "There is plenty of idle capacity in the construction industry - unemployed workers, unused machinery. And the government can borrow for 15 years at negative real interest rates."
This type of infrastructure spending is going to have to be done (roads and bridges) in the near future anyway. As Summers points out, not doing it now, "...burdens future generations just as surely as more debt does."
So, cutting spending does not appear to be the way to go for 2013 GDP growth.
Monday, February 11, 2013
Paul Krugman On The Ignorance Caucus
http://www.nytimes.com/2013/02/11/opinion/krugman-the-ignorance-caucus.html?hp
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"When a man has put a limit on what he will do, he has put a limit on what he can do." (Charles Schwab)
***************
Paul Krugman has come up with a way to showcase just how much our elected representatives miss the boat in terms of critical thinking skills. In this case, he's following Eric Cantor, House majority leader, on calling for a complete end to federal funding of social science research (the entire National Science Foundation budget for social and economic sciences amounts to 0.01 percent of the budget deficit).
He goes on to point out that Cantor's support for medical research is "curiously limited." He's all for developing new treatments, but he and his colleagues have adamantly opposed "comparative effectiveness research," which seeks to determine how well these treatments work. After all, who would want to do that?
Here's a quote from Krugman: "The truth is that America's partisan divide runs much deeper than even pessimists are usually willing to admit; the parties aren't just divided on values and policy views, they're divided over epistemology. One side believes, at least in principle, in letting its policy views be shaped by facts; the other believes in suppressing the facts if they contradict its fixed beliefs."
So, when Hilary Clinton left the Sate Department, she said of her Republican critics, "They just will not live in an evidence-based world." As Krugman points out, "She was referring specifically to the Benghazi controversy, but her point applies much more generally. And for all the talk of reforming and reinventing the G.O.P., the ignorance caucus retains a firm grip on the party's heart and mind."
I have become convinced over the years that Krugman has had to become a "political economist" just to counter politician's ideas on what to do with the economy (especially since December, 2007). Krugman would never be one to "kick the can down the road" but I read the other day that he would rather see the U.S. do that than engage in massive budget cuts that would only cause more unemployment both directly and indirectly. As I have pointed out before, both Krugman and Buffet took the position that the U.S. did NOT do enough infrastructure spending as the recession began and that's too bad for many reasons. Probably the most important of those reasons is that we have crumbling (or about to crumble) bridges and roads - in other words, we have real need for infrastructure spending.
It's nice to see that we have good news about jobs - as Catherine Rampell points out in her 2/1/13 "Economix" post, for the 28th straight month, the country added jobs: 157,000 non-farm payroll jobs in January, to be precise. But, to get back to where we were when the recession began (at 5% unemployment) within 2 years, would require job growth of 284,984 jobs created per month. There are 12.3 million workers looking for work and not finding it. Counting the "underemployed," there are 21.4 million. And, the Republicans are arguing about what to "cut" from the U.S. budget.
Really.
I (continue to) just love the WSJ summary of "economists" reactions to the most recently reported GDP growth number (4th quarter): 0.1% contraction. "Stripping out defense and inventories, GDP growth accelerated to 2.6%." Of course, if those defense cuts eliminated your job, that hypothetical 2.6% isn't helping you any.
Really.
***************
"When a man has put a limit on what he will do, he has put a limit on what he can do." (Charles Schwab)
***************
Paul Krugman has come up with a way to showcase just how much our elected representatives miss the boat in terms of critical thinking skills. In this case, he's following Eric Cantor, House majority leader, on calling for a complete end to federal funding of social science research (the entire National Science Foundation budget for social and economic sciences amounts to 0.01 percent of the budget deficit).
He goes on to point out that Cantor's support for medical research is "curiously limited." He's all for developing new treatments, but he and his colleagues have adamantly opposed "comparative effectiveness research," which seeks to determine how well these treatments work. After all, who would want to do that?
Here's a quote from Krugman: "The truth is that America's partisan divide runs much deeper than even pessimists are usually willing to admit; the parties aren't just divided on values and policy views, they're divided over epistemology. One side believes, at least in principle, in letting its policy views be shaped by facts; the other believes in suppressing the facts if they contradict its fixed beliefs."
So, when Hilary Clinton left the Sate Department, she said of her Republican critics, "They just will not live in an evidence-based world." As Krugman points out, "She was referring specifically to the Benghazi controversy, but her point applies much more generally. And for all the talk of reforming and reinventing the G.O.P., the ignorance caucus retains a firm grip on the party's heart and mind."
I have become convinced over the years that Krugman has had to become a "political economist" just to counter politician's ideas on what to do with the economy (especially since December, 2007). Krugman would never be one to "kick the can down the road" but I read the other day that he would rather see the U.S. do that than engage in massive budget cuts that would only cause more unemployment both directly and indirectly. As I have pointed out before, both Krugman and Buffet took the position that the U.S. did NOT do enough infrastructure spending as the recession began and that's too bad for many reasons. Probably the most important of those reasons is that we have crumbling (or about to crumble) bridges and roads - in other words, we have real need for infrastructure spending.
It's nice to see that we have good news about jobs - as Catherine Rampell points out in her 2/1/13 "Economix" post, for the 28th straight month, the country added jobs: 157,000 non-farm payroll jobs in January, to be precise. But, to get back to where we were when the recession began (at 5% unemployment) within 2 years, would require job growth of 284,984 jobs created per month. There are 12.3 million workers looking for work and not finding it. Counting the "underemployed," there are 21.4 million. And, the Republicans are arguing about what to "cut" from the U.S. budget.
Really.
I (continue to) just love the WSJ summary of "economists" reactions to the most recently reported GDP growth number (4th quarter): 0.1% contraction. "Stripping out defense and inventories, GDP growth accelerated to 2.6%." Of course, if those defense cuts eliminated your job, that hypothetical 2.6% isn't helping you any.
Really.
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