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')
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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.
Thursday, February 28, 2013
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)
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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?
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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?
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)
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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.
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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.
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)
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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?"
http://www.nytimes.com/2013/02/23/opinion/arguing-about-the-keystone-pipeline.html?ref=opinion
***************
"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?"
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
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"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)
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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)
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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)
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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.
Saturday, February 9, 2013
Greg Mankiw On Immigration
http://www.nytimes.com/2013/02/10/business/how-economics-has-benefited-from-immigration.html?ref=business
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"Until thought is linked with purpose, there is no intelligent accomplishment." (James Allen)
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Greg Mankiw points out today that all Americans are beneficiaries of a policy that welcomed our ancestors when they arrived at the border: "As an economist, I am often surprised at the hostility that some segments of the population express toward immigration. Most members of my profession are far more receptive to it..."
Like many, I believe that immigration is the key to America's demographic future as well as a creative force behind the founding of new businesses. I'm glad the U.S. government is determined to do something about improving the immigrant situation in 2013.
One quick word on the economy. According to a short summary at the end of January in the WSJ, economists, commenting on the 0.1% contraction in overall GDP growth for the 4th quarter, characterized it as one of the "best looking" contractions in memory because it was "small" and because the contraction in military spending was easy to spot. So, GDP, according to the economists, really grew 2.6% without the defense spending and inventory accumulation negatives.
And, we all live at "Disneyworld."
***************
"Until thought is linked with purpose, there is no intelligent accomplishment." (James Allen)
***************
Greg Mankiw points out today that all Americans are beneficiaries of a policy that welcomed our ancestors when they arrived at the border: "As an economist, I am often surprised at the hostility that some segments of the population express toward immigration. Most members of my profession are far more receptive to it..."
Like many, I believe that immigration is the key to America's demographic future as well as a creative force behind the founding of new businesses. I'm glad the U.S. government is determined to do something about improving the immigrant situation in 2013.
One quick word on the economy. According to a short summary at the end of January in the WSJ, economists, commenting on the 0.1% contraction in overall GDP growth for the 4th quarter, characterized it as one of the "best looking" contractions in memory because it was "small" and because the contraction in military spending was easy to spot. So, GDP, according to the economists, really grew 2.6% without the defense spending and inventory accumulation negatives.
And, we all live at "Disneyworld."
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