http://online.wsj.com/article/SB10001424052702304765304577478561041473358.html?mod=WSJ_Opinion_LEADTop
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"Example is not the main thing in influencing others ... it is the only thing." (Albert Schweitzer)
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Alan Blinder is an economics professor at Princeton and has served as Vice Chairman of the Federal Reserve. In his article published last night, he suggests that, with legions of construction workers remaining unemployed while we all drive over roads and bridges that need repair, just does not make sense.
He's right but we appear to have a "political economics" (my term) dividing line between the Democrats who want to help state and local governments maintain their level of spending (which has dropped 6.4% since its 2008 peak). According to Blinder, most Republicans reject this idea "...even when it saves the jobs of teachers, fire fighters and police officers."
Blinder has some solid ideas about what to do about this problem that he hopes will avoid "partisan ideology."
One of those ideas is on budget policy: "...we need a two-pronged fiscal package. In the near term, we need modest stimulus, focused tightly on creating jobs. But that stimulus should be paired with a vastly larger dose of long run deficit reduction - perhaps ten to twenty times larger than the stimulus - over the ten year budget window.
Blinder's ideas on public investment and education are important and also doable. I strongly recommend reading them. And, Congress should read them too!
Tuesday, June 26, 2012
Monday, June 18, 2012
Schumpter On Dishonesty
http://www.economist.com/node/21556548/print
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"All human development, no matter what form it takes, must be outside the rules; otherwise, we would never have anything new." (Charles Kettering)
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Looking at the "Schumpeter" blog section of "The Economist," there's a post ("A tissue of lies") that features a social psychologist looking at why people lie and cheat in business (and even business school).
I didn't realize that I could have gotten my MBA (at least, over recent years) at Concordia College in the US Virgin Islands. In that particular institution, Mark Howard an attorney for BSkyB, a broadcaster, proved in a cross-examination that his pet schnauzer got very high grades having completed his MBA (in what appears to be record time).
Further, I find that in a survey of American graduate students, 56% of those pursuing an MBA admitted to having cheated in the previous year, compared with 47% of other students.
Schumpeter points out that the Sarbanes provision that makes misstated financials a criminally liable act for a CEO or CFO is a step in the right direction.
Schumpeter suggests that Dan Ariely's new book "The (Honest) Truth about Dishonesty," will reinvigorate the discussion. As a social psychologist who has spent years studying cheating (and teaching at the Duke Fuqua School of Business), Ariely contends that the vast majority of people are prone to cheating. He gets to a "vast majority" by including the "fudging" category: forgetting to put a few coins in an honesty box, etc.
Ariely has some interesting examples of fudging but his bottom line is: nudge people to police themselves by making it harder for them to rationalize their sins.
Some good thoughts.
***************
"All human development, no matter what form it takes, must be outside the rules; otherwise, we would never have anything new." (Charles Kettering)
***************
Looking at the "Schumpeter" blog section of "The Economist," there's a post ("A tissue of lies") that features a social psychologist looking at why people lie and cheat in business (and even business school).
I didn't realize that I could have gotten my MBA (at least, over recent years) at Concordia College in the US Virgin Islands. In that particular institution, Mark Howard an attorney for BSkyB, a broadcaster, proved in a cross-examination that his pet schnauzer got very high grades having completed his MBA (in what appears to be record time).
Further, I find that in a survey of American graduate students, 56% of those pursuing an MBA admitted to having cheated in the previous year, compared with 47% of other students.
Schumpeter points out that the Sarbanes provision that makes misstated financials a criminally liable act for a CEO or CFO is a step in the right direction.
Schumpeter suggests that Dan Ariely's new book "The (Honest) Truth about Dishonesty," will reinvigorate the discussion. As a social psychologist who has spent years studying cheating (and teaching at the Duke Fuqua School of Business), Ariely contends that the vast majority of people are prone to cheating. He gets to a "vast majority" by including the "fudging" category: forgetting to put a few coins in an honesty box, etc.
Ariely has some interesting examples of fudging but his bottom line is: nudge people to police themselves by making it harder for them to rationalize their sins.
Some good thoughts.
Wednesday, June 6, 2012
Deflation
http://www.businessweek.com/articles/2012-06-05/five-charts-that-show-deflation-is-a-growing-threat
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"There ain't no rules around here. We're trying to accomplish something." (Thomas Edison, Inventor)
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So, three years after the U.S. recession technically ended (June, 2009), there's still the threat of deflation. The consumer price index rose zero percent in April from March because falling energy prices made up for any other rising prices.
According to Peter Coy (article attached), "With slow growth and [weak] job creation, there's a risk...that the general price level will actually start to fall, as it did for several months at the end of 2008 in the teeth of the financial crisis. Deflation is good for shoppers but it's terrible for people who owe money because their incomes shrink while their debts don't. It's also bad for workers because it's a sign of economic weakness, pay cuts, and layoffs."
I like what Coy has done with his "5 Charts" depicting the deflationary forces at work. The first is crude oil price per barrel: dramatic and it's showing up at the pump. Number 2 is the "Commodity Price Index" which tracks 22 basic commodities (butter, steel scrap, rubber, sugar, corn, etc.), is down 7% since March 1.
The third deflationary chart is the "output gap" which traces the difference between what the economy is able to produce "...if it's running at top manageable speed and what it's actually producing." According to the CBO (Congressional Budget Office - an organization that has no political axe to grind), the output gap is around 5.5% of GDP. Obviously, excess capacity, at whatever level, puts downward pressure on the price of labor and equipment.
The fourth chart "10 Year Treasury Yield" ("...canaries in the inflation coal mine..."), has fallen to 1.5%. That's the lowest in the last 50 years.
The fifth chart (Number employed at all levels of government) shows government employment falling. This chart shows all levels of government employment actually falling 2.7% since June 2009, really offsetting some of the growth the private sector has managed to show during that period.
Not surprisingly, it was reported this week that both Paul Krugman and Larry Summers were advocating for more "stimulus" in the face of weak economic growth indicators. Krugman has been consistent about this since the original stimulus happened: he said it wasn't enough then and now he sees that being proven out. Summers was there as the original (President) Obama economic "czar" so, in his case, whatever he advocated then, he's saying now was not enough. Of course, this is the same Larry Summers who was defrocked as president of Harvard and carped about "...no adults being in charge..." while still working for (President) Obama as the economic czar.
So, "deflation," we'll see.
***************
"There ain't no rules around here. We're trying to accomplish something." (Thomas Edison, Inventor)
***************
So, three years after the U.S. recession technically ended (June, 2009), there's still the threat of deflation. The consumer price index rose zero percent in April from March because falling energy prices made up for any other rising prices.
According to Peter Coy (article attached), "With slow growth and [weak] job creation, there's a risk...that the general price level will actually start to fall, as it did for several months at the end of 2008 in the teeth of the financial crisis. Deflation is good for shoppers but it's terrible for people who owe money because their incomes shrink while their debts don't. It's also bad for workers because it's a sign of economic weakness, pay cuts, and layoffs."
I like what Coy has done with his "5 Charts" depicting the deflationary forces at work. The first is crude oil price per barrel: dramatic and it's showing up at the pump. Number 2 is the "Commodity Price Index" which tracks 22 basic commodities (butter, steel scrap, rubber, sugar, corn, etc.), is down 7% since March 1.
The third deflationary chart is the "output gap" which traces the difference between what the economy is able to produce "...if it's running at top manageable speed and what it's actually producing." According to the CBO (Congressional Budget Office - an organization that has no political axe to grind), the output gap is around 5.5% of GDP. Obviously, excess capacity, at whatever level, puts downward pressure on the price of labor and equipment.
The fourth chart "10 Year Treasury Yield" ("...canaries in the inflation coal mine..."), has fallen to 1.5%. That's the lowest in the last 50 years.
The fifth chart (Number employed at all levels of government) shows government employment falling. This chart shows all levels of government employment actually falling 2.7% since June 2009, really offsetting some of the growth the private sector has managed to show during that period.
Not surprisingly, it was reported this week that both Paul Krugman and Larry Summers were advocating for more "stimulus" in the face of weak economic growth indicators. Krugman has been consistent about this since the original stimulus happened: he said it wasn't enough then and now he sees that being proven out. Summers was there as the original (President) Obama economic "czar" so, in his case, whatever he advocated then, he's saying now was not enough. Of course, this is the same Larry Summers who was defrocked as president of Harvard and carped about "...no adults being in charge..." while still working for (President) Obama as the economic czar.
So, "deflation," we'll see.
Tuesday, June 5, 2012
Slow Recovery = No Recovery
http://online.wsj.com/article/SB10001424052702303918204577444222179044362.html?mod=WSJ_Opinion_LEADTop
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"Don't ever be too impressed with goal setting. Be impressed with goal getting." (John C. Maxwell)
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Robert Barro has articulated in today's wsj.com what many of us feel: there is no economic recovery. His numbers key on the growth rate of "real gross domestic product."
Barro points out that the average annual growth rate of U.S. GDP since 1948 has been 3.1% while, in 12/07 to 6/09 recession, GDP fell by 5%: "But this decline is 10% relative to trend - that is, after factoring in normal growth. To make up for this shortfall, the subsequent recovery has to attain growth rates averaging above 3% for several years."
Yet, Barro points out, in the current "recovery," growth has averaged only 2.4% per year and 1.8% in the first quarter of 2012. And, here is his point: "This low growth means that the U.S. economy has actually been falling further and further behind the normal trend. Therefore, it is not a recovery at all."
Unfortunately, professor Barro's ending points out that Keynesian-style demand stimulus has not worked for the past three years so we need to do something different like "... individual incentives to work, produce and invest." What Barro misses is that we didn't do enough infrastructure spending which would have created more jobs and more tax receipts for government.
That's OK. He's defined the problem - he just has the wrong "solution."
***************
"Don't ever be too impressed with goal setting. Be impressed with goal getting." (John C. Maxwell)
***************
Robert Barro has articulated in today's wsj.com what many of us feel: there is no economic recovery. His numbers key on the growth rate of "real gross domestic product."
Barro points out that the average annual growth rate of U.S. GDP since 1948 has been 3.1% while, in 12/07 to 6/09 recession, GDP fell by 5%: "But this decline is 10% relative to trend - that is, after factoring in normal growth. To make up for this shortfall, the subsequent recovery has to attain growth rates averaging above 3% for several years."
Yet, Barro points out, in the current "recovery," growth has averaged only 2.4% per year and 1.8% in the first quarter of 2012. And, here is his point: "This low growth means that the U.S. economy has actually been falling further and further behind the normal trend. Therefore, it is not a recovery at all."
Unfortunately, professor Barro's ending points out that Keynesian-style demand stimulus has not worked for the past three years so we need to do something different like "... individual incentives to work, produce and invest." What Barro misses is that we didn't do enough infrastructure spending which would have created more jobs and more tax receipts for government.
That's OK. He's defined the problem - he just has the wrong "solution."
Friday, June 1, 2012
Job Market Performance
http://www.nytimes.com/2012/06/02/business/economy/us-added-69000-jobs-in-may-jobless-rate-at-8-2.html?ref=business
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"The greatest enemy to tomorrow's success is sometimes today's success." (John C. Maxwell)
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Today's jobs report is no better than the last two that preceded it. The Labor Department said that the economy gained a net 69,000 jobs in May. The unemployment rate rose to 8.2% (from 8.1% in April) which is certainly not the direction anyone is looking for.
The Labor Department also revised April's gain in jobs, estimated in last month's report at 115,000, down to an increase of 77,000.
There's a general consensus that the economy needs to grow by about 125,000 jobs each month to just maintain the current unemployment rate. Yesterday, the estimate of overall growth for the U.S. for the first three months of 2012 was revised downward to a 1.9% annual rate from 2.2%. A rate of 2.5% GDP growth is the generally accepted equivalent for keeping job growth at 125,000 per month.
The U.S. auto industry has been a bright spot and that's usually a sign of flow thru impact on spending/jobs in the economy. It was reported this morning that Ford's U.S. sales rose 13% in May on strong demand for its F-Series pickups and SUVs. Importantly, Ford says demand for trucks has followed in increase in new home construction since the start of this year.
Let's hope that the rest of the economy starts to look like Ford and the auto industry.
***************
"The greatest enemy to tomorrow's success is sometimes today's success." (John C. Maxwell)
***************
Today's jobs report is no better than the last two that preceded it. The Labor Department said that the economy gained a net 69,000 jobs in May. The unemployment rate rose to 8.2% (from 8.1% in April) which is certainly not the direction anyone is looking for.
The Labor Department also revised April's gain in jobs, estimated in last month's report at 115,000, down to an increase of 77,000.
There's a general consensus that the economy needs to grow by about 125,000 jobs each month to just maintain the current unemployment rate. Yesterday, the estimate of overall growth for the U.S. for the first three months of 2012 was revised downward to a 1.9% annual rate from 2.2%. A rate of 2.5% GDP growth is the generally accepted equivalent for keeping job growth at 125,000 per month.
The U.S. auto industry has been a bright spot and that's usually a sign of flow thru impact on spending/jobs in the economy. It was reported this morning that Ford's U.S. sales rose 13% in May on strong demand for its F-Series pickups and SUVs. Importantly, Ford says demand for trucks has followed in increase in new home construction since the start of this year.
Let's hope that the rest of the economy starts to look like Ford and the auto industry.
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