Detroit is the capital of the Rust Belt; once a thriving city that manufactured cars for the world it is declining into crime and being abandoned at a frightening rate. A radical plan is being shopped around: demolishing whole neighborhoods and turning it into farmland. It has been estimated that Detroit has 33,500 empty houses and 91,000 vacant residential lots.
Operating on a scale never before attempted in this country, the city would demolish houses in some of the most desolate sections of Detroit and move residents into stronger neighborhoods. Roughly a quarter of the 139-square-mile city could go from urban to semi-rural. . . .
Politically explosive decisions must be made about which neighborhoods should be bulldozed and which improved. Hundreds of millions of federal dollars will be needed to buy land, raze buildings and relocate residents, since this financially desperate city does not have the means to do it on its own.
I am all for plowing that city under and give my whole-hearted well-wishes to the effort. But will someone please tell me why I have to help pay for making a city full of bad decision makers back into farmland?
The politically connected would be granted that farmland, and in a few years (when the economy starts to grow again) will be selling it to real estate developers for a huge profit. My tax dollars should pay for this scheme? I think not.
GOP leaders released a statement announcing their move Wednesday night; they'll bring the matter to their conference on Thursday.
"We believe the time has come for House Republicans to adopt an immediate, unilateral moratorium on all earmarks, including tax and tariff-related earmarks, and we will support changing the official rules of the House Republican Conference to incorporate such a moratorium when a special conference meeting on the matter takes place Thursday," the GOP leaders said in the statement.
"When Republicans take back the House, we will rein in out-of-control federal spending and bring fundamental change to the process by which Congress spends American taxpayers’ money.”
Promises, promises.
If Republicans had acted like conservatives when they already had control of Congress (and the White House) then they wouldn't have lost it all in the first place. And we wouldn't be trillions in debt with double-digit unemployment. But noooo!
Over $1m for Each ARRA Job Created in Shelby County
Shelby County garnered $478 million as a result of the federal government's foolish attempt to tax and spend their way out of the recession. The result of the government's largess (at taxpayer expense) has been 346 jobs saved or created.
That's right, the American Recovery and Reinvestment Act (ARRA) monies distributed in Shelby County have saved or created 346 jobs at a cost of about $1,381,503 each.
Call me silly, but I'd prefer you just give me the million and I'll live off the interest and leave the rest to my kids. You can keep your job.
Statewide, Tennessee is expected to get almost $6b, which is projected to save or create 10,300 jobs. A little simple math tells us that each job only costs the American taxpayer $582,524. Again, I'm thinking that would make a very nice nest egg to carry me through the recession until the free market starts generating real jobs.
What's that? The free market can't create jobs under the crushing burden of trillions of dollars of additional national debt? And how is the government tax-and-giveaway supposed to help that? It isn't? Isn't anyone thinking ahead?
The Investor's Business Daily has an excellent analysis of the efficacy of the "stimulus." First, what the money actually accomplished:
In reality, as the CBO explains, "five programs accounted for more than 80% of the outlays from ARRA in 2009: Medicaid, unemployment compensation, Social Security ... grants to state and local governments ... and student aid."
In other words, what was labeled a "stimulus" bill was actually a stimulus to government transfer payments — cash and benefits that are primarily rewards for not working, or at least not working too hard.
Then the damage done:
From the CBO figures, it appears that 39% to 44% of the $862 billion will be for increased transfer payments, including refundable tax credits (checks to people who don't pay taxes).
The American Recovery and Reinvestment Act of 2009 had extended federally funded unemployment benefits by 53 weeks, and another bill in November added 20 more — bringing the total up to 99 weeks in states with high unemployment.
As the Federal Reserve's Open Market Committee minutes for January noted: "The several extensions of emergency unemployment insurance benefits appeared to have raised the measured unemployment rate, relative to levels recorded in past downturns, by encouraging some who have lost their jobs to remain in the labor force. ... Some estimates suggested it could account for 1 percentage point or more of the increase in the unemployment rate during this recession."
My own estimate, in past articles available at cato.org, is that the stimulus act added about 2 percentage points to the unemployment rate.
Roosevelt's New Deal extended the Great Depression by years. Obama's Great Giveaway has done the same. Watch out for the double dip.
Today is a big day in America. Only 36,000 people lost their jobs today, which is really good.
Now that is compassion as expressed by a true liberal. Reid is talking about the "good" news that official (i.e., government numbers) unemployment held steady at 9.7 percent in February. Underemployment, which includes people so beaten down by months of frustration of not being able to find a job that they have recently given up even looking, rose from 16.5 percent to 16.8 percent.
Similarly, the U6 number which includes everyone who wants a full-time job but has given up looking for one, ticked upward in February, once again approaching 22 percent.
Of course, were it not for automatic “seasonal adjustments” incorporated by the U.S. Department of Labor a month ago, the unemployment rate in January would have risen to 10.6 percent, and the “underemployment rate” – which includes people who are so depressed with the job market that they’ve given up searching for work – would have climbed to 18 percent.
"Eight months into the much-touted recovery, the economy should be adding jobs not just losing jobs at a slower pace," University of Maryland economist Peter Morici wrote in an analysis.
"No study of economic history could yield a conclusion other than that the US economy (walks) along the precipice of a double dip recession." . . .
Economist Michael Pento, of Delta Global Advisors in Parsippany, N.J., said the better-than-expected jobs number was boosted primarily by the 15,000 Census workers hired and does nothing to mask what he considers the near-certainty that the second half of the year will see another leg down for the economy.
"We still haven't created any jobs. They can't get any loans, their incomes are down and they face much higher taxes in 2011 and higher interest rates," Pento said in an interview. "I don't know why anybody would think anything else. If I'm wrong I'll fall down and build a shrine to John Maynard Keynes."
Lenders are collapsing at the fastest pace in 17 years amid losses on residential and commercial real estate loans made at the height of the market. U.S. “problem” banks climbed to the highest level since 1992 in the fourth quarter and FDIC Chairman Sheila Bair warned Feb. 23 that the pace of failures will “pick up” and exceed last year’s total of 140.
26 failures in 64 days. Never mind "picking up" -- if the current pace keeps up there will be 148 failures for the year.
Do you think we got our money's worth? $356 billion TARP financial investment, $1.5 trillion in Federal Reserve rescue efforts, and so on.
More importantly, what will our grandchildren think of us when we hand over a shattered economy and huge debt to them?
CBO: Obama Budget Plan Underestimates Deficits by 1.2 Trillion
The Congressional Budget Office announced that the budget proposed by Barack Hussein Obama will generate bigger deficits than Obama thinks every single year. Over the next ten years, this would total 1.2 trillion dollars more than what Obama's office has estimated.
The nonpartisan agency said today the deficit will remain above 4 percent of the nation’s gross domestic product for the foreseeable future while the publicly held debt will zoom to $20.3 trillion, amounting to 90 percent of GDP by 2020. By then, interest payments on the debt will have quadrupled to more than $900 billion annually, the report said.
Deficits between 2011 and 2020 would total $9.76 trillion, the CBO said.
Economists generally consider deficits topping 3 percent of GDP to be unsustainable because that means government debt is growing faster than the ability to pay back the money.
“The news today from CBO is clear: The president’s budget will continue to lead our nation into a fiscal catastrophe -- an ever worse one than the president’s own numbers suggest,” said Representative Paul Ryan of Wisconsin, the top Republican on the House Budget Committee.
Exactly.
The CBO estimated that subsidy cuts to student-load lenders would save $20 billion less than Obama said, and that TARP would cost $10 billion more. On other matters, it wasn't so sure:
The CBO said that it couldn't analyze what the administration projects to be $743 billion in revenues from health-care legislation but "assumed that the policies would have the effect set forth in the budget." Likewise, it uses the administration's cost estimate of climate-change legislation--which the White House says would have no effect on deficits--for its figures.
Has anyone ever seen revenues that weren't overestimated or costs that weren't drastically underestimated? Please. The one thing that we can count on is that the CBO's deficit estimate of 20.3 trillion dollars will more likely end up being 25 trillion. Speaking of incorrect:
The CBO also said that Obama's debt projections were optimistic.
Gee, ya think?
Obama, who inherited a flood of red ink from his predecessor George W. Bush, has promised to halve the 1.3-trillion-dollar deficit he took on by 2013.
Instead, Obama will multiply the Bush deficit by more than 15 times! Yet another broken Obama promise. Anyone keeping count?
What's the difference between a Democrat and a drunken sailor? A drunken sailor stops spending money when he runs out of money!
Economy Headed for Second Dip, Worse than the First
A group of leading economists, financiers, and former federal regulators have issued a report warning that an economic crises -- a "bigger crises" -- will inevitably come to pass, and may lead to "a calamitous global collapse."
In the report, the panel, that includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high risk investing that precipitated the near collapse of the U.S. economy in 2008.
The report warns that the country is now immersed in a "doomsday cycle" wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.
"Risk-taking at banks," the report cautions, "will soon be larger than ever."
This should come as no surprise. The American people howled in protest when those responsible for the financial crises were allowed to keep their jobs in addition to being rewarded with billions in bailout dollars. But Washington politicians did not risk alienating Wall Street and the bribery donation dollars that they control. (Another example of why term limits would be a good great idea.)
The report, commissioned by the nonpartisan Roosevelt Institute, recognizes that the architects of the wasteful bailouts and ineffective reforms are still in charge:
The report blasts some of Washington's key players. Johnson writes, "Our government leaders have shown little capacity to fix the flaws in our market system." Two other panelists, Simon Johnson, a professor at MIT, and Peter Boone of the Centre for Economic Performance, voiced similar criticisms.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner "oversaw policy as the bubble was inflating," write Johnson and Boone, and "these same men are now designing our 'rescue.'"
Yet our politicians reinstated Bernanke earlier this year, even as the economy continued to flounder. One wonders why.
To hell with reforming the financial system. If the economy heads into a double dip and unemployment continues to plague the American worker, one hopes that the Tea Party takes hold and leads to government reform.
500 US workers were fired today in the US. This is on top of the 10,400 jobs lost last year in the US and Canada. Next up: Europe and Asia.
Expenses for workforce reductions at IBM will probably be about the same this year as in the past two years, according to a person familiar with the plans. Work has shifted overseas as IBM coped with sales drops in three of the past four quarters. Most of the restructuring costs this year will be from Europe and Asia, said the person, who declined to be identified because the information isn’t public.
Based on a superficial look at spending and voting patterns, Democrat states seem to be a hole. Which is logical, given the tax-and-spend mentality of Democrats when compared to Republicans (except, of course, when Republicans hold both houses of Congress and "spend like drunken sailors").
But Gillespie goes deeper and takes a look at which states get the most and least back from the federal government for every dollar they send. The five states in the worst financial condition ("all among the bluest of blue states") received an average of 72.4 cents for every dollar they sent to Washington in 2005 (the most recent data he found). Whereas the five most "fiscally fit" states (3 red, 2 skew blue) received an average of $1.066 back.
Those are fascinating stats, and probably more meaningful than the initial blue state/red state analysis. If a state is smart enough to get more from the federal government than they send, doesn't that point to a higher level of fiscal acumen in general?
Reason wraps up with:
Contra Forbes, this is not particularly a Red State-Blue State thang (witness the moocher mentality among all those red or leaning-red states above [and god bless New Hampshire, even if it does have state-run liquor stores; live free or die, whatever]). It's a state thing. And pretending that it's a Democrat thing is simply one way to let Republicans off the hook, which as George W. Bush could tell you at the national level, is never a good thing.
Greenspan Says Obama Economy Widening Rich-Poor Gap
Former Federal Reserve Chairman Alan Greenspan opines that while small businesses and the jobless are languishing in the wake of the credit crunch, high earners are benefiting from the rising stock market and large corporations are driving the recovery.
"It's really an extraordinarily unbalanced system because we're dealing with small businesses who are doing badly, small banks in trouble, and of course there is an extraordinarily large proportion of the unemployed in this country who have been out of work for more than six months and many more than a year," said Greenspan, who headed the Fed from 1987 to 2006.
With both housing starts and auto sales "dead in the water," he said he thought it would be difficult to make the case that the economy is poised for a strong rebound.
The rich get richer and the poor get poorer. That qualifies as neither "change" nor "hope".
Greenspan went further, calling the current recession "by far the greatest financial crisis globally ever":
Greenspan said that while the economy was in worse shape in the Great Depression, the recent financial crisis was potentially more harmful than that in the 1930s because “never had short-term credit literally withdrawn.”
Greenspan said that the gross domestic product may recover to the level of previous peaks earlier this year, even though traditional drivers of growth such as housing starts and motor vehicles were “dead in the water.” He also said small businesses show few signs of improving because lenders are struggling with commercial real estate mortgages.
Here's betting Obama's next round of "stimulus" misses the mark again by ignoring the driving force behind our free market economy, i.e., the small business and American entrepreneurs. After all, the Democrats in the Senate are.
Federal Reserve Bank of Kansas City President Thomas Hoenig describes our national debt as "unsustainable" and says that we have to take "difficult" steps to resolve the problem. Otherwise, the Federal Reserve may not be able to carry out its dual objectives of price stability and maximum sustainable long-term growth.
The U.S., to curtail the debt, should choose the option that’s the “most difficult and probably the least palatable politically: We can act now to implement programs that reduce spending and increase revenues to a more sustainable level,” Hoenig said.
“I recognize that this last option involves hard choices and short-term pain,” Hoenig said. “However, in my view it is the responsible path to sustainable economic growth with price stability.”
Further, Hoenig recently criticized the IMF's chief economist for proposing that central banks accept higher levels of inflation, saying:
“While this may sound like a reasonable theory from a credible economist, my concern is that it rationalizes solutions to short-term problems that too often take an economy down the wrong path,” Hoenig said.
If he keeps talking sense, Hoenig may soon be my favorite bank dude.
Behind closed doors and with no cameras present, President Obama signed into law Friday afternoon the bill raising the public debt limit from $12.394 trillion to $14.294 trillion.
Must be more of that "transparency" that he promised.
German Chancellor Angela Merkel is backing away from the proposed EU bailout of Greece:
Despite a show of Franco-German unity on the crisis and the first statement from EU leaders pledging to safeguard the currency's stability, hopes on the markets of a German-led rescue plan to shore up Greece's critical public finances were dashed by Merkel, who repeatedly emphasised that Athens would need to put its own house in order and brushed aside all questions of financial support.
"Germany is stepping totally on the brakes on financial assistance," said a senior EU diplomat. "On legal grounds, on constitutional grounds and on principle." Another senior diplomat said of the Germans: "They're not waving their chequebooks."
Watch for the DOW to take another dive tomorrow.
And to show that some things never change:
Merkel and Sarkozy held a joint press conference after the summit to demonstrate Franco-German unity, but that masked fundamental differences over how to proceed.
"France and Germany cannot agree on anything," said a Brussels official. "They are not always on the same page."
A Florida school district is using $350,000 of stimulus money federal taxpayer money to give iPods to parents for filling out a ten minute online survey. Believe it.
The school district is using the device to reward parents of children with disabilities who fill out a 10-minute online survey. The district wants to know how well it's connecting with the parents and how to get parents involved in their children's education. . . .
The district has more than 10,000 students with disabilities.
You can give your opinion of this program by taking an online poll. So far, 90% of the respondents are against it. But hey, since when does anyone ask us how to spend our tax dollars?
The government needs money and "health advocates" are advocating adding yet another $1 per pack tax on cigarettes. While the billions in tax revenue would be welcome to cash strapped states, I am firmly opposed to "sin taxes" in general.
Legislative power should not be used to punish legal behavior. If you want to make people stop smoking, make it illegal. Don't try to tax it out of existence. The poorest of our citizens bear the brunt of the additional taxes, and rather than dedicating the money to health programs it goes into the general pool where it is wasted by our politicians.
Remember, next comes raising taxes on beer, then hamburgers and milkshakes, then whatever else our liberal tree-hugging, granola-crunching, "I-know-what's-best-for-you" surrender monkeys decides we should stop doing ("for our own good", of course).
From ABC News comes the disturbing (but hardly surprising) news that the "overwhelming majority" of our taxpayer-funded stimulus money dedicated to wind power has gone to foreign companies.
Nearly $2 billion in money from the American Recovery and Reinvestment Act has been spent on wind power, funding the creation of enough new wind farms to power 2.4 million homes over the past year. But the study found that nearly 80 percent of that money has gone to foreign manufacturers of wind turbines. . . .
"According to our estimates, about 6,000 jobs have been created overseas, and maybe a couple hundred have been created in the U.S."
Further outrages at the end of the story. Go. Read. Angerize yourself. Write your congressman.
Just watched the $2.5 million Superbowl ads for the census. Last week the tax and spend politicians raised the federal debt ceiling by 1.9 trillion dollars and the economy shed yet another 20,000 jobs in January. Yet the Census Bureau is spending millions of taxpayer dollars to get people to fill out forms?
How many people could get job training for that same amount of money? How many jobs would be created if that money were to be given back to small businesses?
USDA estimates up to $58 billion will be spent on food stamps this fiscal year, which ends Sept 30, with average enrollment of 40.5 million people. Food stamps were renamed the Supplemental Nutritional Assistance Program in 2008.
Obama's budget includes lowering the amount that those in the highest tax brackets can deduct for charitable contributions. The wealthy will have to pay higher taxes and simultaneously be getting less financial benefit from charitable giving.
Some once-flourishing local charities have been unable to survive. Family Services of the Mid-South, a 115-year-old nonprofit, is closing this week after transferring a few of its programs to other agencies. The Destiny Foundation of Central Florida, which ran a children's clinic, thrift store and food pantry in Orlando, has suspended its operations and may close.
A recent survey by the Human Services Council of New York City, encompassing 244 local nonprofits, found that 60 percent had seen some decrease in public funding and 73 percent reported reductions in private donations. More than half had laid off staff in the past year, and 35 percent had eliminated programs.
One of the city's oldest and largest charities - the Brooklyn Bureau of Community Service - has laid off about 50 of its 550 employees. It's also eliminated a program that helped disabled people make the transition from welfare to work, and scaled down a program that's helping kids from troubled homes avoid foster care.
And that was last year. Children's clinics, homeless shelters for families, food banks, shops that clothe children -- all are in danger as the national debt rises and unemployment remains high.
Consider giving whatever you can. In the meantime, just know that Obama hates children.
The Obama administration is forecasting 9.8% unemployment by the end of the year, barely down from where it now stands.
Those predictions are in line forecasts from independent economists. The administration is predicting 8.9 percent unemployment at the end of 2011, and 7.9 unemployment percent by the end of 2012.
Moody's Warns of Credit Downgrade; Dems Aspire to Higher Debt
Moody’s Investors Service says that the U.S. triple A sovereign credit rating may be downgraded unless either the economy improves or action is taken to reduce the country's ballooning national debt. Seeing as a growth economy will not happen because consumers are frightened that their country will go broke, I don't see any way out of this.
Meanwhile, the US Treasury now projects that the national debt will hit the debt ceiling of 12.4 trillion dollars by the end of February, one day ahead of the vote to skyrocket it up an additional 1.9 trillion dollars.
Obama's legacy may very well be the man that destroyed the nation's credit rating.
Unemployment rose in 306 of 372 metropolitan areas last December. It fell in only 41, or just 11% of our cities.
Joblessness topped 10 percent in 138 metro areas, up from 125 in November but below last year's peak of 144 areas in June. . . .
The lowest unemployment rates are in the upper plains states, with Fargo, N.D. reporting the nation's lowest rate, at 4 percent, followed by Grand Forks, N.D., and Lincoln, Neb., at 4.1 percent each.
Yeah, but who wants to live in that frozen hell? If the current rate of "global warming" keeps up, the whole area will be under a glacier by 2015.
The MSM headlines scream good news about economic growth during the final quarter of 2009: Economy Grows at 5.7 Pct Pace, Fastest Since 2003. Wow, that's great! Third quarter growth was only 2.2%. This economy must really be heating up! The White House crowed that this was "the most positive news to date on the economy."
Oops . . . wait a minute. Let's take a closer look. Consumer spending was 1.44%, down from 2.8% in the previous quarter. After all:
Consumer spending, which normally accounts for about 70 percent of U.S. economic activity, has been held back by the worst labor market in a quarter century.
Oh yeah, that troublesome "jobless recovery". People without jobs make for a bad economy, "recovery" be damned. Let's check ShadowStats for the latest numbers:
The red line in the graph above is what the government (and MSM) tells us the unemployment rate is. The gray line is what the government uses in internal reporting, or when they are trying to be honest. It includes workers who recently gave up looking for work (or "short-term discouraged workers). The blue line includes people who are willing to work, capable of work, want to work, but got so tired of banging their head on the concrete wall of rejection that they gave up a while ago, the "long-term discouraged workers". According to ShadowStats, this number was "defined out of official existence in 1994". I guess Slick Willie couldn't tell the truth either.
On top of everything else, new home construction went into free-fall, dropping from 18.9% in the third quarter to only 5.7%. So much for that housing bubble repairing itself, as "recent data have hinted at some weakness starting to creep in." Weakness, yeah. That comes from a major artery of our economic health being slit open.
But at least business investment was up 2.9 % after falling 5.9% the previous quarter. That's got to be good, right?
The two straight quarters of growth followed a record four quarters of decline. Still, the expansion in the fourth quarter was fueled by companies refilling depleted stockpiles, a trend that will eventually fade. . . .
Must be why the NASDAQ dropped 1.45% and my personal investing portfolio (which almost always way outperforms the NASDAQ) dropped 1.34% last Friday. Yeah, the day that this "good news" came out.
Unlike past rebounds driven by the spending of ordinary shoppers, this one appears to hinge on spending by businesses, foreigners and — until it runs out — government stimulus.
History suggests this isn't the recipe for a strong recovery. In the early 1980s, businesses led a recovery from recession. Their inventory building accounted for 74 percent of growth in the first.
But then the economy contracted. A drop in inventories was a key reason why. The economy fell into a second, more severe recession in 1981 and 1982. The unemployment rate hit 10.8 percent, the post-World War II high.
Is another "double-dip" recession likely now?
Of course, ABC tries to pooh-pooh the idea of a double-dip recession. Me? I'm watching my pennies because I can't afford the risk.
Soros Warns of Double Dip Recession; Recommends Socialism
Liberal financier George Soros thinks that there is every possibility for a double dip recession to occur next year. To stop this from happening, he wants to increase national debt of countries around the world:
"Some countries like Greece do have deficits of 12.5% of GDP [gross domestic product], which is intolerable and has to be reduced. Other countries like the United States and the main European nations have plenty of room to increase their deficits."
"I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. The political resistance to it increases the chances of a double dip in the economy in 2011 and after that."
Supporting running up an even higher debt to pass on to our children (and great-great-great-grand children) is bad enough. But here's what he thinks of Obama's plan to put additional controls on financial institutions:
With the first day of the World Economic Forum dominated by the debate over re-regulation of the banks, Soros said he was supportive of Barack Obama's plan to limit the size and scope of Wall Street institutions, but said that it "did not go far enough".
He said that even if the reforms were agreed, the problem of banks considered "too big to fail" would remain. "Institutions have to be controlled so that they don't fail. They have to be kept under much closer regulatory supervision."
Soros said the globalisation of finance should be matched by global supervision. Leverage limits and tougher capital regulations would help to reverse the trend of the past few decades. "Deregulation became contagious," Soros said.
According to socialist Soros, only government can control a bank so as to keep it from failing. Evidently, government programs can't fail. Which is true, as long as you have taxpayers willing to keep throwing money at a problem that would have long ago died a painful death in the free market.
But worse yet, Soros wants "global supervision". The American government running our car companies is bad enough. Can you imagine handing our banks over to the U.N.?
There are more loopholes in President Obama’s proposed “spending freeze” than in an Olympic volleyball net. Gargantuan government entitlements (Social Security, Medicare and Medicaid) are exempt. A half-trillion in unspent stimulus money is exempt. Foreign aid is exempt. The Democrats’ proposed $154 billion jobs bill (Stimulus II) is exempt.
Pet federal education programs will be exempt (including $4 billion for the White House “Race to the Top” standards initiative and an additional $1.35 billion he just requested in the 2011 budget). Green jobs spending will be exempt. (Obama proposed $10 billion in new clean energy spending earlier this month.) Electorally driven tax-credit expansions will be exempt. The health care takeover plan is not included. As even The New York Times reported, the “estimated $250 billion in savings over 10 years would be less than 3 percent of the roughly $9 trillion in additional deficits the government is expected to accumulate over that time.”
Which amounts to a molecule in a drop of the ocean of red ink in which American taxpayers have been drowning.
As always, read it all. 'Cause then you'll run accross nuggets like this:
McDonald’s French fries have a longer shelf life than Obama’s pledges of fiscal accountability.
The majority-Democrat Senate rejected Obama's plan to create a bipartisan task force to come up with ways to reduce the federal deficit.
The special deficit panel would have attempted to produce a plan combining tax cuts and spending curbs that would have been voted on after the midterm elections. The measure went down because anti-tax Republicans joined with Democrats who were wary of being railroaded into cutting Social Security and Medicare.
The Senate vote to kill the deficit task force came just hours after the nonpartisan Congressional Budget Office predicted a $1.35 trillion deficit for this year as the economy continues to slowly recover from the recession. . . .
The report sees unemployment averaging 10.1 percent this year as the economy grows by just over 2 percent. It would grow only slightly more next year with an unemployment rate of 9.5 percent.
The plan was offered as an amendment to a deeply unpopular bill to permit the government to borrow an additional $1.9 trillion to finance its operations and prevent a first-ever default on U.S. obligations.
Today is a triumph for those pro-Big Government, for it is the day that the number of federal subsidy programs both reached and exceeded the 2,000 mark. From CATO:
Most people are aware that federal spending is soaring, but the federal government is also increasing the scope of its activities, intervening in many areas that used to be left to state governments, businesses, charities, and individuals. . . .
As the federal octopus extends its tentacles ever further, state governments are becoming no more than regional subdivisions of the national government, businesses and nonprofit groups are becoming tools of the state, and individualism is giving way to a more European desire for cradle-to-grave dependency.
The CATO article includes a second a graph that shows the number of subsidies by government department/agency. What is interesting is that the more important the cause, the few subsidies. For instance, the driving force of our economy -- small business -- is dead last.
BTW, if you are wondering about the dip in subsidies in the mid-80s, that would be Reagan's doing.
For far too long, the conventional wisdom in Washington has been that budget deficits don't matter. At least not enough to warrant doing anything painful to rein them in.
Now that attitude seems to be shifting, and it's not hard to see why. When the amount borrowed by the federal government in a year sprouts an extra digit, passing $1 trillion, it's an attention-grabber. And when the government spends nearly $2 for every dollar it is taking in, it's unsustainable. . . .
In reality, the nation is in a serious bind not so much because of the actions of presidents and Congresses, but because of their lack of action. More than 60% of federal spending is on autopilot. Most of this comes from benefit programs, also known as entitlements, such as Medicare and Social Security. In just four years, as the result of growing entitlements and rising interest costs on the national debt, some two-thirds of Washington's dollars will be so-called mandatory spending. . . .
With so many benefit programs tied to health care, the government won't be able to stay afloat if expenses keep rising faster than inflation.
I believe that is the most intelligent thing I've every read in the USA Today. But USA Today's answer is to cut benefits and raise taxes. Reason Hit & Run has a different idea:
But why not start working on changing benefits quickly for people under 50, or 40, or whatever and figuring out other ways to pay for stranded costs than jacking up taxes on the relatively young and the relatively poor (as a group, the elderly are the wealthiest segment of the population, which makes sense since they've have full lifetimes to acquire assets)? . . . Society at every level should be shifting to pension and health-care systems in which you are responsible for funding your future. The days of getting supported or subsidized by a large number of younger workers is over (and that's not a bad thing, either, especially as it gives more freedom and flexibility to individuals).
Then I got to wondering what the federal debt ceiling looks like over time. I found the relevant data on the Office of Management and Budget website, added the latest scheme for 2010, and came up with this (unadjusted for inflation, of course – I don’t have that kind of spare time):
I thought Bush and the drunken-sailor-spending Republican Congress were insane. Looking at the latest trend, I’m getting a little homesick for the good ol’ days.
In addition to his "tax" levied on the largest 50 financial institutions, Obama today proposed greater restrictions on big banks. He wants to limit both the size and "complexity" of financial companies so that a bank's collapse wouldn't affect the entire financial system. Traders reacted negatively, probably because the restrictions would hurt profits:
Financial shares pulled the stock market lower Thursday as President Barack Obama proposed rules that would limit the types of trading banks can do with their money. . . .
Tightening the rules on risk-taking and trading at banks could hurt profits at those companies. Obama said he would seek to limit the size and complexity of large financial companies so that a bank's collapse wouldn't endanger the overall financial system.
The move could mean changes for how big financial institutions like Bank of America, Citigroup Inc. and JPMorgan Chase & Co. are structured. Each of the stocks fell more than 4 percent.
Every time that mook talks out loud, the market crashes. Someone find him a gag. Please.
Shocked by yesterday's events in Massachusetts, Democrats are caught in a quandary. They want to spend more money, which means raising the debt ceiling. But they don't want to be seen doing so anywhere close to the elections in November. So they are going for a massive $1.9 trillion increase to the federal debt ceiling all at once:
Republicans were caught off guard by the scale of the increase which follows a $290 billion short-term debt increase approved prior to Christmas. “That’s just escapism of the worst sort,” Sen. Judd Gregg (R.,N.H.) told POLITICO. But Democrats countered that their only alternative would be to give-in to a Republican strategy of forcing multiple smaller debt ceiling increases, designed to bleed them politically before November.
This perception was reinforced by a meeting Tuesday between Treasury Secretary Timothy Geithner and Senate Republican Leader Mitch McConnell (R-Ky.). By going now with the higher $1.9 trillion target, Democrats are making a high-stakes gamble that the party can pull together once more to put the debt ceiling issue behind them for this election year.
“We have to do this. The alternative is worse,” said Senate Finance Committee Chairman Max Baucus (D—Mont.) in a brief interview.
Hmmm. Why not make the alternative not spending so much money on failed social programs and bailouts? But enough of common sense, let's see what The Chosen One has to say:
To try to reassure these Democrats, Obama is expected to appoint an 18 member, bipartisan fiscal commission to recommend new steps to rein in future deficits. New “pay-go” requirements would be attached to the debt bill under the same scenario, and the administration is working toward a freeze on domestic appropriations in its new 2011 budget, due to be released Feb. 1.
Screw the Democrat politicians, how about reassuring the American taxpayers? And why has he waited so long to try to "rein in future deficits"?
Hopefully the Republicans can stop this bill by turning a few of the more vulnerable Democrats. Those of you in a position to call a vulnerable Dem, please do so and reinforce their fear by telling them they'd best not vote for yet another massive increase in the national debt.
After taking losses in the TARP program, which lent over $100 billion to various financial institutions, Obama is proposing a special tax to be levied against the 50 largest institutions, whether they need the bailout or not. Warren Buffett has an opinion:
“I don’t see any reason why they should be paying a special tax,” said Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., in an interview on Bloomberg Television today. Supporters of the plan to tax the banks “are trying to punish people,” he said. “I don’t see the rationale for it.”
Obama announced a plan last week to impose a fee on as many as 50 financial companies to recover losses from the federal government’s Troubled Asset Relief Program. The levy would apply to firms with more than $50 billion in assets, including Wells Fargo and Goldman Sachs, two companies that Berkshire has investments in. It would exclude Fannie Mae and Freddie Mac, the government-sponsored mortgage lenders taken over by the U.S.
“Look at the damage Fannie and Freddie caused, and they were run by the Congress,” said Buffett. “Should they have a special tax on congressmen because they let this thing happen to Freddie and Fannie? I don’t think so.”
Personally, I think that's a great idea. Levy a tax on politicians that waste taxpayer money because of the bad decisions they make. They seem willing enough to punish businesses for being poor stewards of investor's money. Why should they not be held to the same standards?
According to Business Insider's Law Review, the Obama bank tax is unconstitutional and the banking lobby will object on those grounds. John Carney's analysis leads him to conclude that the bank tax is an unconstitutional Bill of Attainder (which he then goes on to explain), and then delivers that bad news:
In short, the bank tax looks an awful lot like it should qualify as a Bill of Attainder. This means that lawmakers conscientious of their constitutional obligations should refuse to allow the tax to become law.
The president, once he is made aware of the attainder issue, should not sign it into law. And the courts should strike it down.
Whether or not any of that will happen is another issue. Lawmakers seem eager to show the public they can stand up to the banking lobby, and a punitive tax is just the ticket for that. Obama hasn’t shown any signs that he is open to being persuaded by arguments about the constitutionality of his proposals. And successful court challenges on attainder grounds are rare.
If Mr. Carney is correct, we may soon have yet another unconstitutional act perpetrated on the American people by a Congress filled with lawyers that believe they are above the law. But who could possibly be surprised by that?
Moody's has done an analysis of the 100 largest metro areas and found the five markets that will perform best in 2010:
The five areas that Moody's foresees home prices performing best in 2010 are: Tacoma, Wash., (an increase of 2.44%); Memphis, Tenn., (up 0.99%); Pittsburgh (up 0.89%); Charleston, S.C. (up 0.18%); and Seattle (decline of 0.50%).
Yep, fifth best-performing market will actually slide in value. What kind of recovery is that?
Yet a recovery depends on several factors. At the top of the list is a turnaround in the labor market. More people going back to work will have a beneficial effect on household income and consumer confidence and would stabilize the housing market, says Stuart Gabriel, director of UCLA's Ziman Center for Real Estate. As of November, one of out every 10 American workers is unemployed, according to the Bureau of Labor Statistics. And while that's down slightly from October, Moody's expects the jobless rate to peak in the third quarter next year at 10.6%.
You heard it right -- Moody's expects unemployment to continue to rise throughout the first half of 2010.
Further, according to RealtyTrac (an online marketplace of foreclosure listings) the number of foreclosures will continue to rise. Here is the trend they predict:
2.3 million households received foreclosure notices in 2009 (fact)
3.2 million households will have received a foreclosure notice in 2009 (this, and the rest, are RealtyTrac projections)
That number will peak in 2010, approaching four million.
In 2011 foreclosures "will start to go down at least marginally."
With the Treasury and Federal Reserve essentially printing U.S. currency and handing it to banks and overstretched lenders like Fannie Mae, there is always the chance that too many dollars chasing a fixed amount of goods will lead to higher prices. . . .
Only a stunning drop in unemployment to below 9.5% (still well above the 6.8% in November 2008) would cause economists like Resler to revise their views about low inflation. And that’s unlikely.
Other signs indicate people are beginning to think about prices rising instead of falling, however. Yields on Treasury Inflation Protected Securities (TIPS) turned up in December after falling almost continuously since October 2008, suggesting investors no longer believe the consumer price index is going to fall in 2010. Perhaps more ominously, 30-year Treasury rates have risen from below 3% at the beginning of 2009 to a recent 4.6%, while 30-year mortgage rates have risen for four weeks straight and now are at about 5.3%.
Rising long-term rates could just mean businesses are finally increasing their demand for money. But they could also reflect fears about inflation, which undermines the purchasing power of future dollars and drives up interest rates now. Higher rates would undermine the recovery and reduce future growth rates, making it harder for the government to finance deficits, said Carmen Reinhart, an economist with the University of Maryland and expert on the relationship between debt levels and economic growth.
Time to put your money in investments that will rise with inflation instead of eroding due to inflation.
Philip Greenspun summarizes a research report by Frederick J. Sheehan titled “Dark Vision: The Coming Collapse of the Municipal Bond Market."
Sheehan notes that “spending is rising and revenue is collapsing” for all levels of government. Pension fund losses will require governments to double their contributions to pension plans (see my blog posting on public employee pensions). Spending is rising, e.g., in New York City from an average of $65,401 in compensation per public employee in 2000 to $106,743 in 2009. The number of full-time employees in NYC grew as well, despite falling school enrollment. The number of state and local government workers grew from 4 million in 1955 to 20 million in 2008 (5x growth, against less than 2X growth in U.S. population). Those workers receive an average of 43 percent more pay and benefits than a private sector worker.
Municipalities dealt with the separation between taxes and expenses by borrowing. In the mid-1990s, states and cities were retiring as much debt as they were incurring. During the 2000s, though, they borrowed about $150 billion per year in aggregate, peaking at $215 billion in 2007 by which time $2.7 trillion in debt was outstanding, more than two years’ worth of tax receipts.
Barring some sort of miraculous boom in the economy and pension fund investment returns, state and local governments are headed for insolvency and default.
Greenspun goes on to cite a Tax Foundation table of per-capita debt for each state and the ratio of debt to GDP. Massachusetts tops out the table with nearly a debt burden nearly 20% that of the state's GDP.
The good news for those of us in Tennessee is that Tennessee ranks 50th on this table, with a debt to GDP ratio of just 1.73%. Texas comes in at 49 with a 2.16% ratio.
But Greenspun's point is that you can no longer depend on the government or rating agencies to properly value government bonds or, more importantly, to evaluate risk associated with those bonds. As entitlement programs increase, as jobs decrease, as the tax burden grows, government entities are increasingly at risk for bankruptcy. When that happens, no one wins.
Does this sound familiar? It hardly seems a coincidence that the sign was strung up within sight of the ubiquitous American Recovery and Reinvestment Act sign touting the wasteful dispersement of U.S. tax dollars on pet projects and boondoggles lavished upon Democrat Friends of B.O. While the Obama administration focuses on saving or creating jobs like the 3 jobs rescued for Clinton pollster Mark Penn at the cost of $6 million, the unemployment rate remains above 10% for those who even bother to try to find work in the eviscerated American business landscape.
Media coverage of the tent-city phenomena was all the rage back in March when Oprah Winfrey featured a Lisa Ling profile of the burgeoning Obamavilles. Of course Hope and Change remained in the air during the opening months of the new administration and the time was still ripe to blame Bush for the misery.
A trillions dollars later, it's a B.O. problem and the party-of-government media has forgotten all about the Obamavilles. While the Obamas jet back and forth from Scandanavia garnering Nobel loot and posing greenly for the Gropenhagen climate conference, many Americans will spend Christmas living in tents or their automobliles.
American Thinker's reference to media coverage got me thinking, and sure enough a quick search of Google News doesn't turn up a single MSM story on Obamaville other than local station RDRO (whose news coverage you can view at Breitbart TV). I'm shocked.
Chart of the Day notes, “… the current job market has suffered losses that are more than triple as much as what occurs at the lows of the average recession/job loss cycle.”
In spite of the massive, debt-incurring “stimulus”.
From his frequent assertions that economic growth is the cause of inflation, to his support of spending "stimulus" as though wealth redistribution actually drives economic activity, to his belief that simple money creation enhances the economy, it's fair to say that the world's most powerful central banker buys into a quite a few of these fallacies. Historians will write volumes on former President George W. Bush's biggest mistakes in office, and while the left and right will have plenty to work with, it's likely that for some at least, Bush's appointment of Bernanke will loom large.
More reports are coming in about the number of jobs (and lack thereof) that were generated by spending billions in "stimulus" tax dollars. For instance, 4,695 jobs were created in Colorado as a result of $48 million in "stimulus" spending. That's over $10,000 of tax dollars spent to generate each job -- and these contracting jobs aren't exactly the highest paying positions.
In Michigan, the state with the highest unemployment in spite of billions more spent "stimulating" the car industry with "Cash for Clunkers" debacle, just 397 jobs have been created.
The low numbers could fuel more attacks by critics of the stimulus plan, who already cite the 9.8% unemployment rate, a 25-year-high, as proof that the plan isn't working.
Federal Reserve Bank of Atlanta President Dennis Lockhart said that U.S. economic recovery will be slow and that “there are risks to even this lackluster outlook.”
“Although consumer confidence is rising, actual consumption has remained muted overall,” Lockhart said. “Consumers remain cautious because of employment concerns and wealth loss. Households continue to deleverage, that is, pay down debt.” . . .
Lockhart said falling commercial real estate prices pose another potential shock to the U.S. banking system. Banks and financial institutions have reported more than $1.6 trillion in credit losses and writedowns worldwide since the global credit crisis began.
The Atlanta Fed chief also warned that growing federal budget deficits threaten the economy.
“Despite the recent growth in U.S. public indebtedness, the level of debt is still manageable,” Lockhart said to the World Affairs Council of Jacksonville. “But the trend is unsustainable and in a less stable country would spell trouble.”
Add to the above the fact that recent reports of slowing job losses are to be viewed with suspicion. The most recent of which said that the rise of unemployment from 9.4% to 9.7% "beat expectations". In reality:
Until, that is, you get to the fine print. A revision to previous reports said 20,000 more jobs were lost in June and 29,000 more in July than previously reported. That's a total of 265,000 fewer jobs than we thought we had. . . .
Critics of the government statistics note that the report is always too rosy to begin with. Including workers who are discouraged or marginally attached--those that want to work, but have given up looking for jobs--the unemployment rate jumped to 11% from 10.7%. If you include people who have taken part-time work, but want to work full-time (the underemployed), the rate jumped to 16.8% from 16.3%.
What else? How about the U.S. trade deficit climbing 16.3 pct to $32 billion in July? Some might say that's because people are buying more. I only wish to point out that people are buying stuff made in other countries, which is because manufacturing has moved outside the borders, hence our unemployment problem.
Two of the indicators that are frequently quoted by economists and financial analysts (besides unemployment) are wages (which recently rose 0.2%, the first rise in quite a while) and aggregate hours worked (which has been declining for 10 months).
A friend, who is concerned about losing her job, just found out that her pay is being cut 4%. Because she is salary, the company is making it up to her by giving her an additional two weeks of vacation. So while the dollar per hour worked remains constant, she is losing both salary and aggregate hours worked.
Want to bet that she loses the extra two weeks vacation before she gains the 4% salary back? Want to bet that she will still be grateful just to continue having a job? I would.
Market Misinterprets Unemployment Numbers . . . Again
Last Friday the unemployment rate shrank for the first time in over a year, from 9.5% to 9.4%. The press and stock market reacted as if the recession were over. But Forbes took a look at the numbers behind the numbers which reveals a very different set of conclusions:
247,000 jobs were lost in July. This hardly signals an improving job market nor a reversal of the economy.
The unemployment rate shrank because 422,000 people exited the job market. Thus the labor pool shrank because a large number of people just gave up looking for work -- enough people to more than just offset the job losses. Again, not a good sign. Forbes says:
For regular unemployment, 247,000 jobs were lost and 422,000 people left the labor force altogether, but since the latter number is larger, the rate "improves." That's why the 9.4% rate is the bad news.
The number of people in the "long-term unemployment" category (more than six months) increased by a whopping 584,000, raising the total to 5 million. Stunning.
On the other hand, Forbes finds some nuggets of good news in the unemployment numbers:
Economists expected 325,000 jobs to be lost, so the lower number (by 78,000) is a bit of good news.
Although wages are still down from where they were a year ago, they rose by 0.2% last month. That's nice, both for those that are still receiving them and for those (few) about to secure a position.
After declining steadily for the last ten months, the number of hours worked held steady, meaning hours aren't being cut.
Forbes concludes with the observation that the overall economy is indeed improving, even if the unemployment rate is not among the indicators:
The surprising, but likely misunderstood turnaround in the unemployment rate will probably send a positive message to consumers, and even markets. John Brady, a senior vice president at MF Global scoffed at the reaction to the report in a note, "Joy and Jubilation rule as 'only' 247,000 jobs were lost last month. If we were to pop champagne corks and spike the punch bowl, we could invite everyone EXCEPT the unfortunate 247,000 who lost their jobs AND those who dropped out of the labor pool."
I empathize with those unsuccessfully looking. With employment being a lagging indicator (that is, the economy has to improve before people begin getting their jobs back), I don't see any real improvement until next year. Here's hoping for another extension of unemployment benefits.
Nouriel Roubini, the New York University economist who was once dubbed "Dr. Doom" because he predicted predicted the global financial crisis, now predicts that the recession won't end until the end of the year and may then do a double dip in 2010 or 2011.
Former Federal Reserve Chairman Alan Greenspan is much more bullish than most, saying that the US economy could grow by up to 2.5 per cent this quarter.
The International Monetary Fund believes the U.S. economic recovery is likely to be “gradual”, contracting a further 2.6 percent this year before expanding 0.8 percent in 2010. But the U.S. economy should start “recovering decisively” by the middle of next year, although the nation’s unemployment rate will peak above 10 percent in 2010.
Nobel Prize-winning economist Gary Becker warns that there is a “big risk” of inflation as the economy recovers, largely because of the hundreds of billions of dollars in excess reserves that banks have on deposit at the Fed.
Even B. Hussein Obama said over the weekend that there will be "many more months" before the US fully recovers from the recession.
“As far as I’m concerned, we will not have a recovery as long as we keep losing jobs,” Obama said. “And I won’t rest until every American who wants a job can find one.”
In other words, Obama swears that he won't be resting -- ever. We'll see how long that lasts. I bet he takes a vacation before I do.
Here in the real world, American payrolls fell at a slower pace in July than in June, probably bringing the jobless rate to a 26-year high 9.6 percent. Meanwhile, Japan's wages fell at the fastest rate on record in June:
Monthly wages including overtime and bonuses dropped 7.1 percent from a year earlier to 430,620 yen ($4,500), the sharpest decline since the survey began in 1990, the Labor Ministry said today in Tokyo. Bonuses shrank 14.5 percent.
Bottom line: economists can talk all they want to about the recession getting better, but the worst is still to come.
President Obama said again Tuesday before departing to Michigan -- which has the worst unemployment in the country -- that he expects the U.S. jobless rate will increase.
The president has faced recent criticism about his $787 billion stimulus package not creating enough jobs to help pull the U.S. economy out of its deep recession. More than 2 million jobs have been lost since Congress passed the package in February.
Yep, we spent $393,500 for each job we lost since February. Isn't that what "change" is all about? Now who's ready to take on health care and "climate change"? Get your wallet out! What's that? Don't have a job to pay for health care, climate change, and more stimulus? Don't worry, the chosen one will just tax the rich to take care of you -- which may end up being anyone with more than a part time job pretty soon.
With the Dow Jones Industrial Average rising above 9,000 for the first time since January, one would think that the prospects for the future look pretty darn good. But not so fast, says "Dr. Doom" Nouriel Roubin, writing in Forbes:
With the current rate of job losses, it is very clear that the unemployment rate could reach 10% by later this summer--around August or September--and will be closer to 10.5%, if not 11%, by year-end. I expect the unemployment rate is going to peak at around 11% at some point in 2010, well above historical standards for even severe recessions.
It's clear that even if the recession were to be over anytime soon--and it's not going to be over before the end of the year--job losses are going to continue for at least another year and a half. Historically, during the last two recessions, job losses continued for at least a year and a half after the recession was over. During the 2001 recession, the recession was over in November 2001, and job losses continued through August 2003 for a cumulative loss of jobs of over 5 million; this time we are already seeing more than 6 million job losses and the recession is not over.
So those without jobs will continue to be jobless for quite some time. We are talking about skilled, previously-productive members of society that will now be a drag on the economy, soaking up GDP dollars because there are no opportunities. Worse yet, many will be cashing in retirement accounts just to survive, meaning that they will have to rely on government entitlement programs after retirement, straining what would already have been over-burdened Social Security and Medicare systems.
This depression will have an impact for an entire generation.
But back to the real Dr. Doom, who points out that on top of outright job losses, companies are "inducing workers to reduce hours and hourly wages", to which I will add that salaried employees are having to work longer hours on frozen or even reduced salaries, often doing the work of two or even more people. Roubin says:
Therefore, when we're looking at the effect of the labor market on labor income, we should consider that the total value of labor income is the product of jobs, hours and average hourly wages--and that all three elements are falling right now. So the effect on labor income is much more significant than job losses alone.
In the time that I was unemployed I saw that the few available jobs were only being made available at reduced rates -- sometimes incredibly reduced rates. One might say, insultingly low rates. Yet companies can do that because it is a buyer's market -- the supply of skilled workers is far larger than the demand. Companies are taking advantage of this fact to freeze or even reduce salaries. It will take years for salary levels to recover, even in skilled fields.
How bad is unemployment? We already know that many have been unemployed so long that they have run through their benefits, even with the government extensions, and many of those have simply given up looking and so are no longer counted. But it is even worse than that, says Roubin:
If you include discouraged workers and partially employed workers, the unemployment rate is already above 16%. If you consider also that temporary jobs are falling now quite sharply, labor market conditions are becoming worse and the average duration of unemployment now is at an all-time high. So people not only are losing jobs, but they're finding it harder to find new jobs. So every element of the labor market is worsening.
The "stimulus" bill that is about to "give back" another $100 billion will be even less effective than last year's "rebate", says Roubin. Consumer spending is down, people are worried about jobs and losing their homes, so they they are less likely than ever to spend anything the government allows them to keep.
The other important aspect of the labor market is that if the unemployment rate is going to peak around 11% next year, the expected losses for banks on their loans and securities are going to be much higher than the ones estimated in the recent stress tests. You plug an unemployment rate of 11% in any model of loan losses and recovery rates and you get very ugly losses for subprime, near-prime, prime, home equity loan lines, credit cards, auto loans, student loans, leverage loans and commercial loans--much bigger numbers than what the stress tests projected.
Worsening unemployment means additional strain on the financial system which means a longer and more protracted depression. But there is even more to worry about, according to Roubin:
The job market report is essentially the tip of the iceberg. It's a significant signal of the weaknesses in the economy. It affects consumer confidence. It affects labor income. It affects consumption. It affects the willingness of firms to start increasing production. It has significant consequences of the housing market. And it has significant consequences, of course, on the banking system.
Overall, it's an extremely weak report and suggests that weakness in the labor markets is going to continue, and that the recession is more likely to continue through the end of the year and the beginning of next year. It also suggests that recovery will be anemic, subpar, below trend. We are still estimating that U.S. growth next year is going to be 1% above the 2009 level, well below a potential growth rate of 3%. This is because there is little deleveraging of households, corporate firms and financial institutions while there is a massive re-leveraging of the public sector with sharply rising deficits and debts as many of the private losses have been socialized.
There are also signs that there may be forces leading to a double-dip recession sometime toward the second half of next year or toward 2011. If oil prices rise too much, too fast, too soon, that's going to have a negative effect on trade and real disposable income in oil-importing countries (U.S., Europe, Japan, China, etc.).
Also, concerns about unsustainable budget deficits are high and are going to remain high, with growth anemic and unemployment rising. These deficits are already pushing long-term interest rates higher as investors worry about medium- to long-term stability. If these budget deficits are going to continue to be monetized, eventually, toward the end of next year, you are going to have a sharp increase in expected inflation--after three years of deflationary pressures--that's going to push interest rates even higher.
For the time being, of course, there are massive deflationary pressures in the economy: the slack in the goods markets, with demand falling relative to supply-and-excess capacity. The rising slack in labor markets, which are controlling wages and labor costs and pushing them down, implies that deflationary pressures are going to be dominant this year and next year.
But eventually, large budget deficits and their monetization are going to lead--toward the end of next year and in 2011--to an increase in expected inflation that may lead to a further increase in 10-year treasuries and other long-term government bond yields, and thus mortgage and private-market rates. Together with higher oil prices driven up by this wall of liquidity rather than fundamentals alone, this could be the double whammy that could push the economy into a double-dip or W-shaped recession by late 2010 or 2011.
So if you have jumped back into the stock market recently, I would keep a weather eye out for a second crash. Take advantage of those automatic sell points that your online broker offers, and revise them often.
Writing for Forbes magazine, Richard Epstein expounds on Why the Obama Stimulus Plan Must Fail. Epstein first directs your attention to the passage of the "stimulus" bill last February:
At the time, brave presidential words promised that this package could create some 4 million new jobs, so that the unemployment rate would top at around 8%. Alas, there are 2.6 million fewer jobs today than when the bill passed, with an unemployment rate of 9.5%, which is still inching upward. ...
In the end, the likely result will be that the unwise government programs will drive out better private ones. On net, shrinking productivity translates into fewer jobs, which explains the spike in unemployment rates.
Epstein goes wraps up with:
The president and the Democrats are now in control of Congress. The Republicans are in disarray. So we have to face these grim prospects: continued record deficits, a huge nationalization of health care, the imposition of heavy carbon taxes, an insane Employee Free Choice Act and higher tax rates and special assessments in 2011 on the most productive individuals of our society.
Today's investors have figured out that tomorrow does not look so rosy. So they are holding back on investment until the storm passes. No new investment, no new jobs. As libertarians well know, each new extension of government power should be examined under a presumption of error. By that standard, the president's stimulus package--indeed his entire legislative program--should be scrapped.
I am not certain that Epstein is correct when he predicts investor behavior. It seems to me that the market is shrugging off significant chunks of bad news by grasping at bits of good news, reminding me of the famed rose colored glasses. But that is not unexpected, given the current under-valuation of the stock market.
Since then, however, the short-sellers have been on the run. Almost every major piece of data since that employment report has been stronger than consensus expectations. This includes the Institute for Supply Management's services index, jobless claims, the trade deficit, retail sales, industrial production, home building, both consumer and producer prices and, finally, import and export prices. The case for a deflationary malaise was mortally wounded. ...
... stocks today are at no more than 50% of fair value . . .
That said, we are also forecasting higher interest rates as the economy grows robustly over the next 18 months and the inflation problem returns. But even using a 10-year Treasury yield of 5.5% suggests the stock market is at no more than 75% of fair value.
Despite this, it is unlikely that stock prices will quickly move all the way back to fair value. Investors have to remain concerned about the prospects for a huge expansion of government in the form of health care spending and regulation as well as limits on carbon emissions. But with each passing week, it appears more and more likely that our new president's legislative agenda on these issues is not going to be altogether successful.
In other words, the stock market is severely depressed and even the predicted inflationary pressures will only wipe away half of the profits that are within grasp. But standing squarely in the way of recovery is concern over explosive growth of government spending, over regulation, and a ballooning deficit -- all elements of B. Hussein Obama's "vision". And the only thing giving investor's hope is the appearance (and fervent hope) that the chosen one's vision will never come to pass.
So in the end, the Democrats may be successful in turning this economy around by balking at additional spending. Hmmm, how terribly conservative of them. But who will notice?
CBO Director: Federal Budget on "Unsustainable Path"
The Director of the Congressional Budget Office writes:
Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. ...
The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.
When the Director of the Congressional Budget Office is worried, so am I.
CBO Director: Federal Budget on "Unsustainable Path"
The Director of the Congressional Budget Office writes:
Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. ...
The current recession and policy responses have little effect on long-term projections of noninterest spending and revenues. But CBO estimates that in fiscal years 2009 and 2010, the federal government will record its largest budget deficits as a share of GDP since shortly after World War II. As a result of those deficits, federal debt held by the public will soar from 41 percent of GDP at the end of fiscal year 2008 to 60 percent at the end of fiscal year 2010. This higher debt results in permanently higher spending to pay interest on that debt. Federal interest payments already amount to more than 1 percent of GDP; unless current law changes, that share would rise to 2.5 percent by 2020.
When the Director of the Congressional Budget Office is worried, so am I.
Democrats are putting an escalating surcharge in place to increase the tax burden on the wealthy, as high as an additional 5.4% on the "ultra" high earners in our society. Former Treasury Department economist and Forbes contributor Bruce Bartlett notes:
Former Labor Secretary Robert Reich calls this "the most blatant form of Robin Hood economics ever proposed." An outspoken liberal, Reich meant this as praise.
And there you have it -- Democrats have become so arrogant that they have no problem in publicly admitting that they are out-and-out stealing from the rich to give to the poor. Wealth redistribution by any other name is still, well, socialism.
Bartlett goes on:
The real problem is that higher tax rates will encourage the wealthy to spend more of their time and resources engaging in tax avoidance rather than making money. . . .
When the top federal income tax rate went as high as 70% back in the 1970s, it led to a vast amount of tax sheltering activity. . . .
It almost goes without saying that tax sheltering is socially and economically wasteful. It does nothing to increase the size of the economic pie and is essentially parasitic. It is far better for people with the talent and skill to earn large incomes to concentrate their efforts on ways to earn more by starting new businesses, revitalizing old ones, finding investment opportunities and so on. Spending more time with their accountants and tax lawyers trying to figure out how to keep their money away from the tax collector does nothing to enrich anyone except the accountants and tax lawyers.
As the top rate rises we can expect Congress to create new tax loopholes for their wealthy campaign contributors. No doubt, they will be justified on the grounds of meeting some critical social need, but their effect will be to lower the effective tax rate--the rate that is actually paid--well below the statutory rate. The result will be to further complicate the tax code and bias investment decisions, which will reduce growth.
In the end, it is highly unlikely that the surtax will bring in anything close to the projected revenue. This is almost inevitable because the models used to project the revenue effects of tax increases are largely static and assume that they don't significantly impact on economic behavior. . . .
I remain convinced that just down the road major tax increases will be needed to avoid national bankruptcy. When that day comes, it will be harder for Democrats to go back to the same well and demand that all the burden fall upon the wealthy, especially if it is clear by then that the surtax didn't raise nearly as much revenue as expected. Congress will have no choice except to look for ways to tax people who have much more limited opportunities for tax avoidance: those who have only wage income, which means the middle class.
Historically, increases in the top rate have tended to pave the way for higher rates on the middle class. Holding down the top rate in effect places a cap on how high tax rates on the middle class can go. If the top rate rises, higher rates on the middle class probably won't be too far behind.
The wealthy aren't going to just give up vast amounts of money without a fight. As taxes go up, time and attention that should be devoted to getting on with one's life will be diverted to protecting one's possessions and legacy. And when taxing the wealthy won't pay for the massive "stimulus" packages and enhanced entitlement programs, the Democrats will turn to other "haves" in order to give to the have-nots.
Higher taxes are coming for all. Personally, I'm looking for tax shelters now in order to avoid the rush later.
Today's chart illustrates that 12-month, as-reported S&P 500 earnings have declined over 90% over the past 20 months (with over 90% of S&P 500 companies having reported for Q1 2009), making this by far the largest decline on record (the data goes back to 1936).
Forbes’ columnist Bruce Bartlett posits that 2 government reports on long-term budgetary trends released this week, one on Social Security and the other on Medicare, prove that an 81% tax increase will be necessary to fund these two government programs alone.
They both show that we are on an unsustainable path that will almost certainly result in massively higher taxes. . . .
Since many taxpayers have just paid their income taxes for 2008 they may have their federal returns close at hand. They all should look up the total amount they paid and multiply that figure by 1.81 to find out what they should be paying right now to finance Social Security and Medicare. . . .
The reality, which absolutely no one in either party wishes to face, is that benefits are never going to be cut enough to prevent the necessity of a massive tax increase in the not-too-distant future. Those who think otherwise are either grossly ignorant of the fiscal facts, in denial, or living in a fantasy world.
So while we hurtle down the path of growing government entitlements in the midst of a recession depression, Obama is forced to wait to raise taxes in order to keep from totally sinking the economy and the deficit is ballooning out of control. This will make the ultimate day of reckoning even more disastrous.
Can’t wait until Obama gives us “free” health care.
Obama may not be able to raise the dead, but he sure is good at making sure they are taken care of.
Even though only those who receives social security checks are supposed to receive a $250 stimulus check this year. But Romolo Romonini, who died 34 years ago, received one – and he was never part of the Social Security system because he left this country in 1933.
The Social Security Administration claims that there will only be between 8,000 to 10,000 checks cut for dead people and blames it on the rush to get all checks cut by June. They don’t expect to lose too much as they are reminding people that it is a federal offense to make money off of the government’s stupidity.
Remember, Obama promised to go through the budget line by line to make sure none of our money is wasted. How’s that working out so far?
One thing is for certain: with the government proving they can’t tell the difference between a live citizen and a dead one, putting them in charge of our health care will be interesting, to say the least.
Baseline Magazine analyzed the last three months of IT job postings from job supersite Dice.com, and the findings are grim:
Job Area
Jobs
% Change from 3 Months ago
Available Tech Jobs
49,016
-14.5%
Full Time Jobs
30,039
-21.8%
Part Time Jobs
1,040
-10.1%
Contract Jobs
21,742
- 9.2%
Worse yet, last year contract jobs made up of 40% of the IT available tech jobs, but they now account for 44% of the jobs. So companies are not only not hiring as many people as they use to, they are hiring even fewer permanent employees. Tech employers are not making a long term investment in human capital, which is a sign that tech companies do not see things improving.
But for the geeks looking for work, what areas are best?
Job Area
Jobs
% Change from 3 Months ago
Windows OS
8,445
13.7%
Unix OS
6,997
12.8%
Oracle DB
9,119
18.0%
SQL DB
7,389
11.6%
C / C++ / C#
9,354
10.6%
J2EE / Java
8,676
12.7%
I was without work for 7 months 2 weeks and 3 days in a job market that was shedding jobs faster than you can pull fur off a mangy hamster by petting it with a steel brush. 7½ months without work was a long, long time, but the shrinking job market made it seem like an eternity.
So I have a lot of empathy for the growing numbers of my colleagues that suddenly find themselves out of a job. I can tell you to approach looking for work as a full time job for which you must develop new skills. I was actively looking for gainful employment about 10 hours a day, seven days a week, for 7½ months.
But now I have a fantastic position doing interesting work for an organization that does a great deal of good in the world. Being one of those growing numbers of contractors, I don’t know how long this position will last, but take it from me — there is work out there if you are willing to make the connections and do the work of finding it.
Take the 63 year old attorney in Lafayette, Louisiana who said: “We have to find a way out where we can make just what we need to just under the line so we can benefit from Obama’s tax plan,” She added, “why kill yourself working if you’re going to give it all away to people who aren’t working as hard?”
In order for her to do this, she tells ABC News that she is going to have to drop clients she has counseled for years. Or consider Dr. Sharon Poczatek, the dentist in Boulder, Colorado who said she would probably start working fewer days, “which means having fewer employees, seeing fewer patients and taking time off.”
Today’s Chart of the Day is quite fascinating. When the value of the Dow is adjusted for inflation and charted over time, we see that:
. . . the current bear market actually began in 1999 only to be interrupted briefly by a multi-trillion dollar credit bubble. That bubble has burst, of course, and the Dow now trades at a level not seen since 1995.
In other words, the current crashing economy is merely a continuation of the Clinton recession. Not that I’m making any excuses for Bush – I still consider him to be a disastrous domestic-policy president in the tradition of Carter and FDR. And he had eight years to try and get us out of the recession.
But I just smile and shake my head when I still see those “I Miss Bill” bumper stickers.
Of course, the question now is whether the weak-dollar, business-killing regulation, high taxation, big government, wealth redistribution socialist policies of the Democrats in the Congress and the White House are going to take the Dow down to 4,000, thus making the crash as large as the Great Depression.
I’ve always said that Bush was the worst president on domestic issues since the socialist Franklin Roosevelt. Now the numbers are in:
From January 2008, right after Kudlow's column ran, through January 2009, the U.S. economy lost 3.5 million jobs. The private sector loss of 3.65 million jobs was slightly offset by 148,000 jobs created by federal, state and local governments. Say what you will, the Bush years were boom times for Big Government.
And the private sector? Beginning and ending in recession, the Bush presidency added a net of 407,000 private sector jobs over eight years, less than 51,000 a year, the worst eight-year record since 1927-35, which includes the first six years of the Great Depression.
By January 2009, the average workweek had fallen to 33.3 hours, the lowest since record keeping began in 1964.
From Jan. 31, 2001, through Jan. 31, 2009, 4.4 million manufacturing jobs, 26 percent of all of the manufacturing jobs in the United States, disappeared.
Pat Buchanan believes that the ever increasing trade deficit is proof that:
America is a receding and declining world power.
And in dealing with this systemic crisis, Obama's stimulus package is as irrelevant as were the Bush tax cuts.
While I disagree that Bush’s tax cuts were irrelevant (they did, after all, encourage investing in America in addition to pulling us out of the Clinton recession), Obama’s stimulus package will do nothing more than expand Big Government and shore up special interests (e.g., labor unions and teacher unions).
And if you thought FDR was a socialist, just wait until you see what Obama with a Democrat congress will do.
Stimulus Effects to Rest Squarely on Obama’s Shoulders
B. Hussein Obama may have inherited a troubled economy, but the “stimulus” package is all his. With a Democrat congress to back him, BHO is getting everything his heart desires.
Last night Obama gloomily predicted a tough year ahead (which didn’t exactly call for much talent in the prognostication department), but then said that if he gets his stimulus package things will turn around:
My hope is after a difficult year--and this year is going to be a difficult year--that businesses start investing again … consumers start feeling their jobs are stable and safe and start making purchases again.
We’ve seen the Obama-MSM love affair. And in a year this affair will be tested again. As Forbes’ notes:
The economy, the deficit and the financial bailout were bequeathed. But the stimulus package is all Obama's. And in a year's time its success can be judged against his own benchmarks.
And perhaps in a year from now the economists will revisit the theory that FDR’s socialist ideas and big government programs extended the Great Depression by 7 years.
For all those who thought things would stabilize after the election because the uncertainty would be gone, we’ve seen nothing of the sort in recent months.
And then they said just wait until he takes office. Things will get better then.
Obama sworn in.
Dow Jones down 4.01% to 7949.
S&P 500 down 5.28% to 1440.
NASDAQ down 5.78% to 805.
Yep, it’ll all get better soon. But that’s only because it can’t get much worse.
Having read a number of historical fiction books over the years, I have been ingrained with the image of peasants toiling sun up to sun down in the fields under the oft-brutal rule of feudal lords.
Maybe it wasn't so bad being a peasant way back when. On the other hand, the work was very seasonal with peak, back-breaking periods of hard labor in when plowing and harvesting. Still, the winters were probably nice.
If, that is, you didn't die from something smallpox or the Black Plague. Or gangrene from a simple cut. Or any of a thousand other things.
But as for today, look at Germany's hours. France's are even lower. Is it any wonder that they have failed to live up to their Kyoto Treaty promises because of their inability to get their economies kick started?
Meanwhile, Korea kicks everybody's ass. How many Hyundai's and Kia's have you seen on the road lately?
Thomas Cooley, writing in Forbes, gives his answer to the question of whether or not we are headed for 'Another Great Depression?' First, Cooley offers some perspective. For instance:
The losses to date represent less than .5% of the work force. In the relatively mild recession of 2001 to 2002, job losses equaled about 1% of the work force. In the much more severe recession of 1981 to 1982, job losses totaled nearly 3% of the labor force--six times today's figure. And in the (truly) Great Depression--invoked, now, with an alarmist frequency--job losses between 1929 and the trough in 1933 were 21% of the labor force; and by 1939, total employment remained 13% below 1929 levels.
As I am one of those who recently lost employment, I consider this very good news. Truth is, most of my friends and colleagues are still employed. Those that aren't are having great success in the job market. There are plenty of jobs out there for those industrious enough to go find them and diligent enough to follow up. I am finding that firms are investing in enabling technologies. Not only will we find jobs, but I remain confident that we will secure positions in which we will be better off than we were. But I digress.
Cooley goes on to cite scholarship on economic downturns including a comprehensive study of depressions in 14 countries during the 20th century. While each depression is different, a common theme runs through them all:
It is that unwise policy choices made in the throes of a crisis exacerbate and prolong the real downturn associated with the crisis. In particular, government policies that affect productivity and hours of work are most often responsible for throttling economic growth.
And notes in particular:
Policies matter. Roosevelt was viewed as a great activist leader during the Depression. In fact, he was a great experimenter, willing to try one thing, then another, to turn the country around. The result was an economic downturn that lasted for many years longer than it might have.
Exactly! It has taken a long time to rid ourselves of the notion that Roosevelt actually helped things. I equate Roosevelt with Bush 43 -- both were great on foreign policy but horrible domestically. (OK, so Roosevelt was probably better at foreign policy but at least Bush isn't a socialist at heart!)
The challenge now is keeping our elected servants from going down the same path. I think that will be easier with McCain rather than B. Hussein Obama in charge.
Professor Nouriel Roubini says that the economic measures taken by various governments are too little, too late and calls for "radical policy action" to stave off a "decade-long economic depression":
At this point, the U.S., the advanced economies (and now most likely even some emerging market economies) will experience an ugly recession and an ugly financial and banking crisis--regardless of what we do from now on. We are already now in a global recession that is getting worse by the day. What radical policy action can only do is to prevent what will now be an ugly and nasty two-year recession and financial crisis from turning into a decade-long economic depression.
Personally, I'd rather Congress repeal the pitiful but expensive legislation taken to date and stop all interference. Cut taxes on businesses and capital gains and the market will self correct.
But no, they'll continue doing what politicians do -- give the appearance of action just before an election cycle, and then screw it up more in the months following.
BTW, tiny Iceland has now nationalized three banks in the last week an effort to stop the financial meltdown as the entire country teeters on the precipice of bankruptcy. It might be a good time to invest in the krona.
Although his speech was fabulous, Obama still exhibits a colossal ignorance of economics and small-business issues. For starters, small businesses don't pay capital gains taxes. And Obama plans to tax wealthy individuals and angel investors who can afford to invest in start-ups more than ever before. This will choke up entrepreneurship--precisely what he doesn't want to do.
If it weren't for wealthy individuals willing to take a gamble on new ventures, we wouldn't have entrepreneurs or small businesses--the backbone of America's economy.
I have yet to meet a liberal that understands basic economics.
But Wake Up From Your Slumber notes that Al Gore's carbon trading business (GIM) was tied to Lehman Brothers. Further:
Last year Lehman Brothers released a long and highly publicized report about climate change in which they preached about decarbonization, trying to make their investors keep getting high profits from the Kyoto carbon trade scheme and the support of huge public subventions. All that, of course, with the applause of the usual choir of politicians, the entire media and the Greens.
A year ago they couldn’t predict their bankruptcy but were predicting the climate 100 years ahead.
Proving that everything is tied to global warming. Thus the bankruptcy must be Bush's fault!
Now our opponents tell you not to worry about their tax increases.
They tell you they are not going to tax your family.
No, they're just going to tax "businesses"! So unless you buy something from a "business", like groceries or clothes or gasoline ... or unless you get a paycheck from a big or a small "business", don't worry ... it's not going to affect you.
They say they are not going to take any water out of your side of the bucket, just the "other" side of the bucket! That's their idea of tax reform.
The International Monetary Fund has forecast the top five inflationary economies for 2008:
Zimbabwe (a mind-boggling 300,000 percent-plus)
Venezuela (25.7 percent)
Bolivia (15.1 percent)
Nicaragua (13.8 percent)
Argentina (9.2 percent)
According to Dr. Hendrickson:
What do these countries have in common? You could reply in two ways: 1) they are poorly governed; 2) they are leftist governments, which is simply another way of saying that they are poorly governed.
Read the article to see how the Democrat-controlled Congress is making some of the same mistakes.
The NYTimes has a remarkably even-handed treatment of the value of the US dollar and even says that there are Some Signs of an Upturn for the Dollar. What you will not read in the NYTimes is that in spite of all the articles that have been printed about the US economy being in a recession, it really isn't.
Economists define a recession as two or more quarters of negative GDP growth. Larry Elder, writing in the Washington Times, correctly states that "... since the recovery began in President Bush's first year in office, we have had zero quarters of negative economic growth, let alone consecutive ones."
It's not just the 1Q number that gives me hope. The jobs numbers—both initial unemployment claims and monthly payroll numbers—are also way below levels commonly seen during recession. Plus, corporate profit growth outside of financials and housing remains strong. Simply put, the recessionistas—to borrow a classic Kudlow zinger—are running out of time with both monetary and fiscal stimulus (bleh!) kicking in gear and the credit markets on the mend. If 2Q isn't negative, then what quarter will be negative, if any? Even the NBER doesn't declare recessions when the economy never actually has a single down quarter.
[Richard A. Weiss, chief investment officer and executive vice president at City National Bank] said that, historically, once consumer confidence hits bottom, the economy begins its recovery.
Guess what? The Baltimore Business Journal reported Friday that the new Consumer Attitudes and Spending by Household Index survey showed that consumer confidence hit 39 this month, up from its record low of 29.5 in April.
"Why, if it's a recession, are all the economically sensitive stocks leading the market?'' said James Paulsen, the Minneapolis-based chief investment strategist at Wells, which oversees about $220 billion. "They were priced for consumer death, and now we're finding out not only are they not going to die, but it may not be all that bad.'' . . .
Companies aren't expressing "gloom and doom,'' Barton Biggs, a former Morgan Stanley strategist who now manages $1.5 billion at Traxis Partners in New York, said in a Bloomberg Television interview. "Things are not as bad as you would believe from listening to the press and some of the Wall Street commentators.''
Even Paul Krugman of the New York Times writes a headline reading, Bad news: No recession. Of course, it takes an ultra-liberal like Krugman to put a negative spin on tens of thousands of Americans actually keeping their jobs.
One thing to keep in mind is that economic numbers are often revised months after the initial numbers come out. That's because all the data just can't be collected that fast. For instance, it wasn't until President Bush had been in office for almost a year before economists finally admitted that the recession began Clinton's watch.
But for now, there is no recession and we have the numbers to prove it. Even a Democrat congress couldn't undo the effectiveness of the Bush tax cuts.
One final note: I remember how Democrats and their MSM mouthpieces castigated Bush for talking about how the economy was in recession during his debates with Gore, speaking about "self fulfilling prophecy". Yet now that a Republican is in the White House they don't seem to have a problem talking about a "looming recession", runaway inflation and even the crash of the dollar.
I guess it's OK to scare the voting public if it will scare them into voting for an inexperienced, naive junior Senator who just happens to be a Democrat. Let's hope the American public isn't that gullible come November.
Isn't it time that we bury many of the myths forever about the "middle-class squeeze," "the war on the middle class," "the American middle class is fighting for its life," "Two Amercias," etc.
I'm incensed at the Bush/Pelosi $150 billion economic stimulus package.
You should be, too.
Sending us a check for a couple of hundred bucks is a pandering joke — an economic slap in our faces. . . .
The blob-like federal government has grown to such a size that it is now eating itself with a $9 trillion debt and billions in deficits, smothering economic opportunity.
If you want real economic stimulus it cannot be accomplished until the federal beast is reined in and put on a diet.
Money quote:
The foundation of freedom is economic freedom. You know far better than others how to spend your hard-earned money, how to invest it, and how to take care of your health. Vote for your economic freedom. The economic fate of our country is your hands.
Paul Farrell gives us 17 reasons America needs a recession. I don't agree with them all, but it's definitely food for thought. For instance, this is from the prelude to his list:
Wrong to prevent a recession? Why? Because recessions are a natural and necessary part of the business cycle. Remember legendary economist Joseph Schumpeter, champion of innovation and entrepreneurship?
Economists love Schumpeter's "creative destruction:" Obsolete firms get destroyed and capital released, making way for new technologies, new businesses, like Google. And yet, nobody's willing to apply Schumpeter's theory to the entire economy ... and admit recessions are a natural part of the business cycle.
On of the greatest myths in modern political discourse is that American manufacturing is disappearing. This is far from the truth.
The United States makes more manufactured goods today than at any time in history, as measured by the dollar value of production adjusted for inflation -- three times as much as in the mid-1950s, the supposed heyday of American industry. Between 1977 and 2005, the value of American manufacturing swelled from $1.3 trillion to an all-time record $4.5 trillion, according to the Bureau of Economic Analysis.
With less than 5 percent of the world's population, the United States is responsible for almost one-fourth of global manufacturing, a share that has changed little in decades. The United States is the largest manufacturing economy by far. Japan, the only serious rival for that title, has been losing ground. China has been growing but represents only about one-tenth of world manufacturing.
However, it is true that manufacturing jobs have shrunk, and those that remain require skills far beyond that of a shop floor worker from 50 years ago. Today's factories are computerized, and today's workers are educated and skilled.
So yes, American manufacturing is strong. It does not, however, employ the masses as it once did, nor will it ever do so again. We must adapt. Another reason I continue to believe that fixing our educational systems is our second highest domestic priority (the first being homeland security).
Since the Bush tax cuts fully took effect in 2003, the American economy has created more than 8.2 million new jobs, cutting the unemployment rate to 4.5 percent. That rate, by the way, is on average lower than the rates for the 1960s, 1970s, 1980s and 1990s, OMB says.
Here's a startling fact that puts these numbers into sharper perspective: The economy has had the longest stretch of nonstop job-creation growth since June 1990.
That's why federal tax receipts have risen by more than 37 percent over the past three years and will grow by an additional 7 percent this year.
Put the Dems in power and we'll get oppressive taxes, higher spending and a stagnant economy.
With the June surplus, the total deficit through the first nine months of the budget year, which began Oct. 1, is $121 billion, down 41.4 percent from the same period a year ago, when the deficit totaled $206.5 billion.
The Bush administration this week announced a new deficit projection for this year of $205 billion, down significantly from the $244 billion deficit it forecast in February, reflecting the fact that revenue growth has continued to come in at higher-than-expected levels.
President Bush gives the credit to his tax cuts and "spending restraints". While I certainly agree on the tax cuts, I sure don't know where spending has been restrained (the federal government spent a record $2.066 trillion in the last 9 months).
Democrats, of course, take another view:
. . . saying that Bush had inherited a federal budget in surplus when he took office only to pursue policies which they said contributed to soaring deficits including a record in dollar terms of $413 billion in 2004.
Funny how they don't mention the well established fact that Bush inherited an economy that had already dipped into recession when he first took office and was then battered by a terrorist attack and an expensive war.
Tax cuts work. Even when Congress (Republicans included) continue to spend like drunken sailors.
With three Democrat presidential candidate promising to eliminate the gender pay gap in America's workplace, one has to ask what, exactly, is the problem? Steve Chapman reports:
Buried in the report is a startling admission: "After accounting for all factors known to affect wages, about one-quarter of the gap remains unexplained and may be attributed to discrimination" (my emphasis). Another way to put it is that three-quarters of the gap clearly has innocent causes -- and that we actually don't know whether discrimination accounts for the rest. ...
June O'Neill, an economist at Baruch College and former director of the Congressional Budget Office, has uncovered something that debunks the discrimination thesis. Take out the effects of marriage and child-rearing, and the difference between the genders suddenly vanishes. "For men and women who never marry and never have children, there is no earnings gap," she said in an interview.
This information is not new — every time the subject of male vs. female salary comes up we trot out the studies that show that the pay gap is non-existent in this day and age. But using facts to argue with a liberal is like trying to drive nails into a fog bank.
Take Robert Shiller's graph of US housing prices from 1890 to the present adjusted for inflation (from his book Irrational Exuberance), and use Atari's Rollercoaster Tycoon to plot the ups and downs to a virtual roller coaster, and it makes a pretty fine (and educational) little video.
Retiring Delta Air Lines CEO Gerald Grinstein is turning down the post-bankruptcy compensation package that he is entitled to. He told Delta to use the estimated $10 million to help the employees:
Grinstein, who has led the United States' No. 3 airline since January 2004, said he wants Delta instead to invest what he would have gotten in post-bankruptcy bonuses, to be used for scholarships and emergency hardship assistance for Delta employees, families and retirees.
It isn't that the bankruptcy settlement would have benefited Grinstein alone. The top 400 executives received 8 percent of the company's new post-bankruptcy stock, and the 39,000 line employees will split 3.5 percent of the stock plus another $130 million in cash.
So this is truly refreshing:
Delta hopes to exit bankruptcy in May. Grinstein, 74, who plans to retire this summer, said it wouldn't be right to take money intended as an incentive for future executive performance.
"I'm leaving, so it doesn't fit me," he said in an interview. Besides, he said, "Corporate pay packages have gotten out of control. It has become a salary derby out there."
Bless you Mr. Grinstein. May you have a long and enjoyable retirement.
The last thing we need is a tax increase to slow down the economy. Tax rates can never keep up with Congress’s spending habit. What we need to do is insist that Congress reform their activities and enact some long standing entitlement reform.
Unless you are from Oklahoma, one or more probably both of your senators voted to increase prices of virtually everything in America. The Fair Minimum Wage Act of 2007 passed the Senate last week by an astounding 94-3.
The only Senators voting against this item from the liberal agenda:
Jon Kyl (R-AZ)
Tom Coburn (R-OK)
Jim DeMint (R-SC)
Those not voting:
Charles Schumer (D-NY)
James Inhofe (R-OK)
Tim Johnson (D-SD)
Dear Senator [insert name],
I hope that whatever you traded for your "yes" vote on the Fair Minimum Wage Act of 2007 is worth the price increases and lost jobs that are certain to follow.
I hope that whatever you traded for your "yes" vote on this plank from the liberal platform is worth the damage you have done to your relationship with your constituency.
It is often said that Republicans lost control of both houses of Congress because they quit acting like conservatives. Too bad you apparently haven't learned any lessons from recent history — a trait usually exhibited by liberals.
Regards
In the case of Sen. Corker, who does not have a webform so I can contact him electronically, I wrote the above verbiage in a letter and affixed a big green sticker that says:
My Congressional contributions will be made through the Club for Growth www.ClubforGrowth.org
Claire McCaskill is a Democrat from Missouri about to take her place in the federal Senate for the first time. As far as I am concerned she is more qualified to sit in Washington than most; instead of being a lawyer she is an auditor, having served as Missouri's state auditor.
I know a lot about federal programs. I know how badly they behave. It's not very sexy, but . . . the [Government Accountability Office] is going to love me as a senator. My office is actually going to read their audits.
Astounding. I hope she can get others on board, but she'll be fighting a lot of pet projects up there in Washington.
As senator, agency efficiency is "the most important priority I have: making government work for less money," McCaskill says. The first way she'll do that, she says, is to read the GAO reports gathering dust around Capitol Hill.
Agencies, beware. Overlooked GAO reports such as "BLM's Program for Issuing Individual Indian Allotments on Public Lands Is No Longer Viable" and "Incidents at DoD Mail Facilities Exposed Problems That Require Further Actions" could make a comeback.
Layoffs normally increase at this time of year, says John Challenger of the Chicago outplacement firm Challenger, Gray & Christmas. But layoffs last month were down 15 percent compared with a year ago and 30 percent lower than September's rate. "It indicates the labor market is strong now."
One reason the unemployment rate has fallen so low is an increase in the number of self-employed people, according to Mr. Challenger. "The economy has really changed. People want to work for themselves."
Even better news for those about to graduate: unemployment for those with college degrees was only 1.9 percent in October.
While researching project methodologies today, I came across a study performed late last year: The Impact of Offshore Software and IT Services Outsourcing on the U.S. Economy and the IT Industry.
Commissioned by the Information Technology Association of America (ITAA) [a group that consists of 375 corporate members -- including Microsoft and IBM], the study researched more than just America offshoring IT jobs, but rather looked at global sourcing of programming and services.
The findings include:
The cost savings and use of offshore resources lower inflation, increase productivity, and lower interest rates. This boosts spending and increases economic activity;
Worldwide sourcing of IT services and software increases total employment in the United States. This activity generated an additional 257,042 net new U.S. jobs in 2005; by 2010, net new jobs will total 337,625;
Workers enjoy higher real wages. Global sourcing adds to the take-home pay of the average U.S. worker. With inflation kept low and productivity high, worldwide sourcing will increase real hourly wages in the U.S. by $0.06 in 2005, climbing to $0.12 in 2010;
Demand for U.S. exports increases due to global sourcing. Countries can buy more because they can sell more; the U.S. has more to sell through increased investment in new products and services, better productivity and lower inflation. Global sourcing contributed $5.1 billion to U.S. exports in 2005, growing to $9.7 billion by 2010;
I find the continuing frantic desperation of programmers over the offshoring trend surprising. Sure, at first we were all worried. But I've been in IT long enough to see how these things go in cycles.
I've seen companies make drastic reductions in staff in order to hire contractors and save money on benefits. I've seen that cycle end as companies decided that keeping the experience and knowledge in-house made more sense, and that employees are more committed to quality and are willing to be held accountable.
I've seen companies turn to application service providers (ASP) to run whole sections of their IT services. I've seen companies decide that the SAs (Service Agreements) that ASPs promise can't be counted on and that doing it themselves results in faster turnaround and increases production uptime.
IT offshoring is the same. It works great for some projects (well defined requirements, documented specifications, enough time to allow for differences in time zones to stretch the project out). I can get a skilled programmer in America for $60/hour (and up) or one in India for less than $15/hour.
But nothing will ever take the place of meeting with users, showing prototypes, flexibility in project management and iterative software development.
Our jobs are safe as long as we continue to do them well.
A recent Babson study, conducted by Dr. Bygrave and several colleagues, finds that America is spawning twice the level of early-stage entrepreneurial activity as its major industrialized peers - a lead that has widened since the recession of 2001. And it finds that the pace of new-business formation in the US is both more dynamic and more stable. "That probably explains to a large extent why Europe, other than the United Kingdom, is languishing with chronically high unemployment rates," Bygrave says.
Every lawmaker should take note of this:
His latest research, done with several colleagues, finds higher GDP growth to be correlated with higher churn in a nation's list of largest businesses.
That doesn't mean it would be a bad thing for troubled Ford to execute a turnaround. But it does suggest that fostering new businesses will do more for an economy than propping up old ones.
Amen! From farmers to auto makers, we need to stop subsidizing industry.
I recently had a conversation with one of Lamar Alexander's staff members on this subject, asking when Lamar was going to help out the consumer by getting rid of the ridiculous requirement to put ethanol in our gas. It drives up the price of gas, reduces mileage, and has even been shown to actually increase pollution.
His response was that the DoE really blew it when making that requirement. My response was yes, but Congress blew it by putting a 54 cent per gallon tariff on imported ethanol.
Cao's Blog hosts an excellent summary of how the three tax methods compare. If you have any doubts as to why Fair Tax (i.e., Consumption Tax) is best, then read this.
Worried about your call being routed to India? Worry no more:
After years of snatching thousands of call centre and data processing jobs from Britain, Indian companies are moving onshore, or "near-shore" as they call it, to create jobs in the UK.
The Indian call centre company, ICICI OneSource, said today it is to open two call centres in Northern Ireland, creating 1,000 jobs over the next couple of years. ...
Meanwhile, Africa will see the fastest growth in the number of call centre workers of any region between now and the end of the decade, according to Datamonitor.
When President Bush pledged in 2004 to cut the deficit in half by 2009, critics guffawed. The Boston Globe headlined a story, “Bush’s plan to halve federal deficit seen as unlikely; higher spending, lower taxes don’t mix, analysts say.” “Fanciful,” “laughable” and “all spin,” said the critics.
Well, it turns out that 2009 might be coming early this year. ... This year, the deficit could go as low as $300 billion, right around the 2009 goal of 2.5 percent of GDP.
As Rich Lowry goes on to explain, pro-growth works:
The deficit climbed unexpectedly in the early Bush years and is declining unexpectedly now, not because the projections for economic growth were wildly off, but because the kind of people who pay the most taxes took a bath early in the decade and are recovering now. Almost 47 percent of income taxes are paid by those making more than $200,000 a year, and they are thriving again. A chunk of the current revenue surge is also from corporate income taxes, which are up 30 percent over last year.
If current trends in federal spending and tax receipts continue, the unified budget would move into balance on Feb. 3, 2009. That’s a ten-month slippage from last month’s trends; what a difference a month makes.
I am mildly disappointed—not that the budget would take longer to balance (...that doesn’t bother me a bit), but that "VG Day" would happen after election day 2008—thereby removing much of the entertainment value from the upcoming presidential campaign.
Click over and check out the Optimist's calculations and graph:
A quick peruse through some of the lefty economists is amusing. I would blog it, but I just don't have the time right now.
But the bottom line is that cutting taxes worked for Reagan, and even though George W. inherited the ClintonRecession, it worked for him too.
Illegal Alien Watch: An Arizona sheriff is using an old tactic to find and arrest those entering our country illegally: posses.
Health Watch: Cancer resistant mice have been discovered. "When white blood cells from the mice are injected into other mice, they eradicate advanced tumours and provide lifetime protection against the disease. ... Even highly aggressive forms of malignancy with very large tumours were eradicated."
Looney Watch: PETA has launched an ad campaign in which PETA President and co-founder Ingrid Newkirk is quated as saying, "Even if animal research resulted in a cure for AIDS, we'd be against it." [One supposes the same goes for cancer.]
Fun Facts for Lefties: Fidel Castro is apparently worth $900 million and ranked seventh on the Forbes magazine list of wealthy heads of state.
Thanks, in part, to low long-term interest rates, the trend over the past decade has been impressive. Not only have housing prices been increasing at a rapid rate, the rate at which housing prices have been increasing has been increasing. So while the recent softness in the real estate market has resulted in a lower median price for a single-family home, the real estate market as a whole has not yet broken below trend.
Click chart for full story and full-sized image.
The aggregated graph clearly shows an accelerated price curve in recent years, indicative of the infamous "housing bubble". Worse, as I illustrated last year, the bubble exists in some states while others are experiencing normal increases in home prices:
While Big Charts shows that the bubble is not yet showing signs of bursting, I'm sticking with the prediction I made last summer: the US housing bubble will burst this summer. It will throw thousands out of work and shake consumer confidence. (Remember that $700 billion of consumer spending last year came from home refinancing.) Hunker down.
Speaking of hunkering down, Ben Stein has some words of warning:
To make the situation worse, retirees and those who will soon retire are far from financial safety (see "Living Hand to Mouth -- and Barely Getting By"). I recently calculated that the Baby Boomers need to have saved -- on average -- $400,000 per household to even start to come up with what they need to live on. Instead, they have saved about $50,000 per household if they have a rental home and about $110,000 if they own their home.
So, what will they do when they retire? What will it be like to cut pills in half, to have to sell your home and move into a trailer, to be faced with unaffordable repairs for your car? ...
The sad fact is that retirees will suffer. And for the leading edge of the Boomers is: It's too late. Many of them cannot escape a drastic ratcheting down in income and lifestyle. A crisis akin to the Great Depression is racing our way: A ruinous drop in standards of life.
Stein has specific advice on how to avoid eating cat food when you get old. And you young kids had better pay attention too.
USA Today reports that Republicans are having a hard time justifying extending the tax cuts because of the costs associated with the war and Katrina. I have several problems with this article:
First, whatever Democrats may think, tax cuts are popular. Eliminating the Death Tax is not only the right thing to do, it would save small businesses from closing when the founder dies — many of them businesses owned by minorities. Eliminating the marriage penalty affected families across the racial spectrum, as did the child tax credit.
This is the reason that politicians like Bill Frist promised to make the cuts permanent. As I said, tax cuts are popular. Uncontrolled spending is what people hate.
Second, the article notes that the CBO estimates that extending the cuts through 2016 will "cost the government" $1.5 trillion, leading the reader to believe that this is the government's money. That is incorrect! Letting the cuts lapse will "cost" the American taxpayer $1.5 trillion by 2016.
Third, nowhere in the article does the journalist make any attempt to address the fact that the cuts shored up consumer confidence and boosted the economy to the point where tax receipts exceeded everyone's wildest expectations. Eliminating taxes on dividends has allowed seniors to keep money derived from wise investments. Cutting the capital gains tax has led to nearly unprecedented investment into American businesses. This is important and it is relevant — politicians do not debate tax cuts without keeping this in mind.
My fourth problem is not with the article but with politicians in general. Take a look at this table from the article:
Tax cuts set to expire
Tax cuts passed in 2001 and 2003 begin to expire this year and in 2009, with the bulk of them sunsetting in 2011. Here's what will happen unless Congress extends them:
Provision
Reduction
Expiration
Individual income tax rates
Top four rates reduced beginning in 2001. Today's rates are 10%, 15%, 25%, 28%, 33% and 35%.
In 2011, rates are scheduled to revert to 15%, 28%, 31%, 36% and 39.6%.
10% bracket
Bottom bracket created in 2001. Now applies to first $7,550 of income for individuals, $15,100 for couples. It is indexed for inflation.
It would be eliminated in 2011.
Marriage penalty
Tax rates and deductions were changed so that married couples pay no more than they would if they filed as individuals.
In 2011, many married couples again would pay more than they would pay as individuals.
Child credit
Credit for children younger than 17 increased from $500 to $600 in 2001 and 2002, and to $1,000 in 2005 through 2010.
It goes back to $500 in 2011.
Estate tax
Top rate gradually reduced from 55% in 2001 to 45% in 2007; exemption gradually increased from $675,000 to $3.5 million in 2009; tax eliminated in 2010.
In 2011, tax reinstated with top rate of 60% and $1 million exemption.
Capital gains
Rates reduced from 10% and 20% to 5% and 15% in 2003; 5% rate, paid by those in lower tax brackets, reduced to zero in 2008.
In 2009, rates revert to 10% and 20%.
Dividends
Rates reduced from standard income tax rates to 5% and 15% in 2003. Tax eliminated for those in lower tax brackets in 2008.
In 2009, rates revert to standard income tax rates.
Alternative minimum tax
Exemption increased to $40,250 for individuals, $58,000 for couples.
In 2006, exemption reverts to $33,750 for individuals, $45,000 for couples.
Sources: Office of Management and Budget; Joint Committee on Taxation; Deloitte & Touche USA
My question is:
Why are tax cuts set to expire but taxes are not?
Why isn't a limitation put onto the collection of a tax when it is passed? Why am I still paying a phone tax first instituted in 1898 to help pay for the Spanish-American War? Why is it that anyone can vote to make a tax permanent?
Screw the flag burning amendment. To hell with "protecting" marriage by changing the constitution. I want a tax expiration amendment. Congress will make no law nor collect any tax that will survive beyond six years.
Auto showrooms are busy once more. Businesses are buying new computers, machine tools, and conveyor belts. The consumer is resilient, so far defying forecasts of a pullback.
In fact, the economic rebound from the slowdown at the end of last year is likely to be dramatic. Some economists think the economy is now moving ahead at a 4 to 5 percent annual rate - just about as good as it gets during a long period of rising interest rates. This sparkling economic performance - the fastest growth in three years - comes even at a time when the housing market, long the bulwark for the economy, is showing clear signs of slowing down.
The problem continues to be the drag of the world economy. French unemployment rose in January to 9.6% and the February numbers for German unemployment are showing a dismal 12.1% unemployment.
Even though the media seems to have waged verbal war on the US economy, consumers have finally stopped listening; consumer confidence rose to a 16-month high as hopes rose for better jobs and wages. And it's no wonder as sales and production soar:
Americans bought more cars, clothing and electronics last month, factory assembly lines kept humming, and home construction accelerated, as the U.S. economy roared into 2006, economists said before government reports this week.
Indeed, the global economic forecast is rosy for 2006. Except for France, perhaps, as the French economy slowed more than than expected in the fourth quarter and industrial production was down.
Meanwhile, Muslims the world over continue to try and ruin brave little Denmark's economy because of the silly cartoon flap, but the Buy Danish campaign* is more than offsetting the effects. At least that is the opinion of Børsen, thoughtfully translated by Samizdata[HT to Michelle Malkin]. In part:
"It just might give a good effect. Normally there is a greater effect the other way around, when you signal disgust and irritation through a boycott. But the present situation is completely unusual, and many dislikes the Muslim boycott and the extremists reactions to the drawings. It is expressed through the buying of Danish goods", says Dominique Bouchet. ...
A simple search on Google gives more than 100.000 "buy Danish" pages."**
E-nough! publishes an excellent dissertation explaining exactly why the Muslim riots in reaction to the cartoons is ludicrous and hypocritical.
EU Referendum has a must-see post explaining why the Muslims should lighten up (the Lego illustration is hilarious, but the Coke graphic is the one that made me chuckle out loud).
** A Google search for Buy Danish now yields 8.5 million hits and this website is the 280th in the hit list. A similar Yahoo search yields 9.5 million in which AlphaPatriot appears 263rd.
President Bush and the Republicans got some good news on the U.S. economy last week, news that advisers and party strategists think will help the Republican Party keep majority control of Congress should the trend continue into the fall elections.
One month into the midterm election year, the government reported that the unemployment rate fell from 4.9 percent to 4.7 percent because business payrolls rose by nearly 200,000 jobs and pushed the jobless rate to the lowest level since July 2001. The economy has created 4.7 million jobs since Mr. Bush's tax cuts took effect in 2003.
At the same time, the Commerce Department reported that manufacturing orders rose by 1.1 percent in December, giving the administration added evidence that the recovery was continuing and showing no signs of slowing down, according to economists who have studied the figures.
The economy is proving as unstoppable as the 11-0 Indianapolis Colts. Consumers have kept spending even in the wake of sharply higher energy prices and after their confidence was pummeled by this summer's hurricanes. And despite initial worries over demand generated by the storms and oil hikes, businesses continue to invest in new equipment and add to their payrolls. ...
CONSUMERS AREN'T CARRYING this economy alone, though. Businesses are also contributing more to growth than they did in previous years. According to the new GDP data, inventories fell by the biggest amount since the 2001 recession. Rebuilding stockpiles will require more gains in production in coming months. And business investment in plant and equipment remains strong.
Visa USA confirmed this with nationwide spending increases of 16.6 percent and 12.1 percent the past two weeks over November last year.
But it's not just brick and mortars that are happy:
More than eight out of ten holiday shoppers (83 percent) said they would shop for holiday gifts online, and a similar number, 80 percent, said they are likely to purchase gifts online from small businesses, according to a new survey commissioned by Yahoo! Small Business and conducted by Harris Interactive.
That's right, after Black Friday comes Cyber Monday, the day when online retailers experience a surge of orders:
Internet holiday shopping is expected to increase 15 percent to 20 percent this year, with the biggest online shopping day expected to be the Monday after Thanksgiving, according to an Ernst & Young report.
Prior to the decade of the 1930s, the wages of inexperienced and unskilled labor were determined by supply and demand. There was no federal minimum wage law and labor unions did not usually organize inexperienced and unskilled workers. That is why such workers were able to find jobs, just like everyone else, even when these were black workers in an era of open discrimination.
The first federal minimum wage law, the Davis-Bacon Act of 1931, was passed in part explicitly to prevent black construction workers from "taking jobs" from white construction workers by working for lower wages. It was not meant to protect black workers from "exploitation" but to protect white workers from competition.
Even aside from a racial context, minimum wage laws in countries around the world protect higher-paid workers from the competition of lower paid workers. ...
The full effect of the Fair Labor Standards Act of 1938 was postponed by the wartime inflation of the 1940s, which raised wages above the level specified in the Act. Amendments to raise the minimum wage began in 1950 -- and so did the widening racial differential in unemployment, especially for young black men.
By now, most everyone knows that the U.S. economic growth rose to 3.8 percent last quarter (to the sound of Democrat gnashing of teeth), mainly due to increased consumer spending and in spite of two hurricanes and a spike in fuel prices. This, of course, caused a terrific rally in the stock market on Friday with the DOW gaining 172 and the Nasdaq up 26.
After a few bleak years of retrenching and downsizing, suddenly there's a feeling of ebullience in Silicon Valley. The buzz is humming. The money is flowing. The deals are happening.
On the other hand, Dell in Austin, Texas is rumored to have laid off around 300 employees last week, the largest downsizing since 2001 when 5,700 workers were laid off.
New Home Sales Fall as Consumer Confidence Hits 2-Year Low, screams the New York Times. But don't believe the headlines that downplay our economy because of housing bubbles, hurricanes and high gas prices. Things aren't that bad. In fact, they're pretty good.
“Even if housing slows this year, we’re coming off a record year and we’ll have something like the fourth best year in history,” said Steve Hovany, president of Schaumburg-based Strategy Planning Inc, a real estate research firm. ...
On Monday, the Illinois Association of Realtors unveiled a survey showing existing home sales in August rose 8.6 percent, the best August on record.
The economy grew at 3.3% during the second quarter, meeting expectations, and then there's this:
Other data showed the U.S. jobs market may already have seen the worst of the damage from Hurricane Katrina, which struck in late August. New claims for jobless pay decreased by a bigger-than-expected 79,000 last week as hurricane-related applications fell, the Labor Department said.
With 58 million Generation Xers and another 74 million in the Generation Y category, there will be more teens in the U.S. than ever, Happel said, and they will be spending money.
This is seemingly the case as orders for durable goods bounced back from a big drop, exceeding expectations by rising 3.3 percent in August:
Shipments increased the most this year and unfilled orders accumulated as companies struggled to meet the jump in demand. That's a sign that businesses are likely to resume spending, after a pause following Hurricanes Katrina and Rita, and give the economy a lift in 2006, economists said.
Europe
Meanwhile in Europe the economy troubles continue and politicians are quick to lay the blame on high oil prices. But politicians are blowing smoke: Britain is the number 10 exporter of oil in the world and yet the British economy grew at an anemic 1.5 percent in the second quarter, it's lowest rate in 12 years.
In Germany (Europe's largest economy), the jobless rate reached a post-WWII high of 12 percent in March and remains at 11.7 percent today as workers are accepting lower wages and longer hours just to keep their jobs. Once again, the EU is threatening to punish Germany for violating the 3% deficit rule (but then again, they threaten every year and nothing comes of it).
While Breton still insists 2 percent growth is possible this year, most economists now expect growth closer to the 1.5 percent predicted earlier this month by the International Monetary Fund -- which also forecast a 1.8 percent expansion next year.
And Italy is predicting that it will end the year with no growth in the GDP at all!
Australia and Asia:
Thankfully, things look better in the rest of the world. Australia's economic growth is expected to make it over the 2 percent mark for the year and should exceed 3 percent in 2006. Japan's GDP gap has narrowed to virtually nothing (-0.2%) and things are finally looking good:
The Nikkei stock index has vaulted up 15% this year, hovering at a four-year high. Japan's 4.4% jobless rate is the lowest since 1998. And the country's economic expansion is now in its 44th month and shows no signs of losing oomph.
But it is India's economy that shines the brightest, rocketing ahead with 6 percent growth for the past decade and a predicted 7.3 percent annual growth for this year. The improvement is the result of an industry liberalization plan implemented by the government that is selling off state-owned industries to private investors and loosening the rules for foreign investment. This year alone, foreign investment is expected to top 10 billion dollars
. Last month the government announced that it was selling 74 percent stakes in New Delhi and Mumbai international airports, continuing the move towards a free economy. The result? Why, a bunch of pissed off communists, of course, who have called a nation-wide strike to call attention to the plight of the working man (i.e., men in unions):
They want the UPA government to stick to the Common Minimum Programme, which is the glue that joins the Communist parties with the Congress-led coalition.
Hmmm. "Common Minimum Programme". Yep, that just about sums up all leftist ideals, from education to medical treatment to jobs. Nothing will kill an economy faster than a strong commie movement.
Fears of gas shortages leading to high prices are running rampant. Prices are spiking and it is shaping up to be a very expensive winter for those in the north.
As expected, there are those that are calling for price controls (Senator Nelson — D, FL, Assemblyman Drew — D, Cape May and govenor candidate Kaine — D, VA) like those set by Carter in the 70s and recently instituted by Hawaii. Those of us who understand basic macroeconomics know that price caps are never the answer; they will merely return us to the days of reduced production and long gas lines.
After Senator and presidental-hopefull Bill Frist oversees the passage of a massive $10.5 billion disaster bill to address the rescue operations in hurricane-ravaged areas, he needs to turn his eyes to a longer-term solution to a clear and present danger to all Americans: high energy costs that will kill our economic growth.
Consumers (most of whom are voters) are accutely conscious of the problem at this point in time as gas prices soar past the historic $3/gallon mark. If I were he, I would take advantage of the crises situation for political gain and ram through some much-needed and highly-visible legislation:
Establish a moratorium on federal taxes for everything petroleum until next spring.
The first federal moter fuels tax was initially set at 1.5 cents per gallon in 1950 and has risen steadily to the current rate of 18.4 cents per gallon (24.4 cents for diesel). While the elimination of this won't do much for a gallon of gas costing four dollars or more, the federal government imposes 43 different direct and indirect taxes on the production and distribution of gasoline.
The American economy has been growing while Europe's sputters. It has been feared that high energy costs would slow the growth and at current spiking levels it certainly will. To give the people some temporary relief the government should find tax monies elsewhere until the winter is over.
This, of course, is merely a temporary stopgap designed to ease the burden on consumers while more comprehensive measures take effect.
Create incentives for companies to build refineries and for states to allow them to be built.
The last new refinery built in this country was in 1976. (We would have had another one in Virginia but after nine years of court battles brought by environmentalists and local residents and an equally wearying nine years of facing state and federal regulators, the company just gave up.)
Worse yet, over half of the existing refineries have closed down over those twenty five years (308 in 1979 to 146 today) due to the prohibitive costs of meeting ever-more-stringent government regulations. This trend is expected to continue, especially among the smaller facilities.
Our refineries are old, inefficient and possiblydangerous. They are certainly running at near-capacity (although total U.S. crude oil processing capacity peaked at 18.6 million barrels a day in 1981, it is estimated that our refineries are running at 90 to 95% capacity).
And with a mere 5% profit margin, there is little incentive for some to make the estimated two to four billion dollar investment to build a new one. That is what must change.
Using the Interstate Commerce Clause of the federal constitution, create a national standard for gasoline formulation and require every state to honor it — even California.
State and federal regulations force manufacturers to produce over 40 different fuel blends (boutique fuels), with different blends required between summer and winter. The burdonsome need to meet custom fuel specifications has cost consumers $47 billion over the last ten years and made it impossible to meet supply demands with excesses in other parts of the country.
Some refineries overseas have stopped shipping gasoline to the United States because they don't want the headache of changing processes nor risk getting stuck with excess supplies when out of season.
Create one formulation for the entire nation and stick to it.
Simplify clean-air regulations.
The Environmental Protection Agency has made a considerable difference in the stewardship of our natural resources but it has come at a high cost. Since its inception in 1970, the EPA has issued a steady stream of confusing regulations that represents one-third of all federal laws and regulations. In the first two decades alone, EPA regulations cost American taxpayers and businesses $1.4 trillion, with over $1.6 trillion in the 1990s. And that doesn't count the hidden costs to American consumers in the form of higher prices and fewer choices.
The EPA itself routinely overreaches its authority. Now that President Bush has proven that our environment can continue to improve even after business-friendly reforms have been put into place, it is time to slap the EPA down and make a stand for the American consumer.
Clean air and a healthy environment at a resonable cost. The EPA would have us pay any cost, even when it doesn't make sense.
As prices come in at over three dollars per gallon they have finally reached a historical high (when adjusted for inflation — click chart for source). Price controls will do nothing to fix the market problems, but tax breaks and incentives can.
In this time of crisis it is time for Senator Frist to show some real leadership and push these reforms through Congress in emergency sessions.
Update 2: Katrina is affecting gas prices overseas, with the price of a gallon of gas hitting $5.08 in Spain, $6.70 in Germany and $7.85 in Norway, with the expectation that prices will continue to rise.
Update 3 — 6 Sept: A pair of stories, hilarious when juxtaposed:
Florida Democrats called on Governor Bush to suspend the state's gas tax. Bush is looking into it but doesn't believe that he has the executive power to do so, saying that it is up to the Democrats in question to send him a bill. But he rather humorously notes:
"That is very good news for Floridians because rhetorically they've been opposed to tax cuts over the last seven years," Bush said of Democratic lawmakers. "For every one letter that apparently I get suggesting I should cut taxes, we'll have 200 press releases criticizing me for doing so."
In Maine, it is Republican lawmakers that are attempting to craft some relief for consumers, asking for a special session of the legislature in which these issues can be addressed:
Suspend Maine's 25.9-cent gasoline tax for a period of at least 60 days to allow the market to stabilize.
Repeal the tax on heating oil used by businesses.
Repeal the automatic indexing of gasoline taxes.
Reduce most administrative state vehicle travel by 15 percent.
Order a temporary change to state employees' work schedules from five eight-hour days to four 10-hour days, wherever possible. Expand state efforts to coordinate and improve car pooling on a statewide level.
Instruct the Department of
Environmental Protection to investigate the use of lower-grade diesel
and gasoline fuels, such as dyed diesel use for agricultural purposes.
The Democrat response? Why, a tax cut would just be a "corporate give-away" that increases the profits of the big, bad, greedy oil companies, of course!
Investor's Business Daily wonders how the media finds so much bad news to play up when the facts are:
GDP:GDP is growing at a solid 3.8%, and many now expect 4% in the second half.
Inflation:We've written its epitaph here so many times we feel like undertakers. Fact is, despite oil's surge above $60, inflation's still a no-show, with core prices up about 2%.
Iterest Rates:Even after the Fed's spree of nine straight hikes in its benchmark funds rate, inflation-sensitive long-term rates remain about where they were a year ago.
Jobs:... until recently the favorite part of the media's litany of woe. To be sure, there was a slow rebound from the recession earlier in this decade. Is it any wonder? The stock market lost an estimated $8 trillion in value in a few short months. Since investment drives hiring, it's no surprise that job growth has lagged.
Even so, we're cranking out on average 180,000 new payroll jobs each month - enough to drive the jobless rate down to 5%, lowest since 2001. In the Clinton years, the media had another name for it - "full employment."
Deficit:Thanks to surging revenues, it will likely come in about $325 billion this week, according to the Congressional Budget Office, down from the $400 billion predicted earlier.
Money quote:
A true supply-side success story. But you knew that. Didn't you?
Consumer prices in June were well-behaved for a second month, while consumer spending revved up overall economic activity.
Two government reports released Thursday showed that inflationary pressures were contained in June. At the same time, consumers hit the shopping malls and dealer showrooms, spurred by the start of summer and attractive auto incentives.
The Labor Department said the Consumer Price Index was unchanged in June, compared with decline of 0.1 percent in May.
Stock markets in Britain, France, and Germany hit three-year highs in recent days. The U.S. S&P 500 stock index reached a four-year high. The mid-cap S&P 400 and the small-cap Russell 2000 climbed to all-time historic highs, as did the transportation index and the New York Stock Exchange index.
Following the 9/11 terrorist attack on the U.S., it took the S&P two years to recover its pre-attack level. After the Madrid train station bombings in 2004, it took stocks 14 sessions to recover. But after the London attack, it took only one day for markets to rebound, with substantial gains coming on the following two days.
Bush May Deliver Early on Deficit Reduction Promise
Bloomberg says that with the increased tax intake Bush might be able to meet his campaign promise three years early:
Bush promised during his election campaign last year that he would pare the annual deficit to about 2.25 percent of the nation's gross domestic product by 2009.
As recently as February, the government was projecting the deficit would rise this year to $427 billion, or about 3.5 percent of the nation's gross domestic product. Some economists, including Mike Englund of Boulder, Colorado, research firm Action Economics LLC, now predict the shortfall will drop to 2.5 percent of GDP this year and as low as 2.0 percent next year. That would mean a deficit next year as low as about $250 billion. ...
After the 2003 tax cuts, ``that's when the economy really kicked into high gear,'' he said. The White House, he said, is ``definitely entitled to crow a little bit. You'd think they'd do a victory lap.''
Even though the Washington Times reported this five days ago, the NY Times finally discovers that the deficit will be $100 billion less than $427 billion that was projected because tax revenues are way, way up:
The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be "significantly less than $350 billion, perhaps below $325 billion."
The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.
Of course, maybe the NYT took the extra five days to come up with ways to pooh-pooh the concept:
Other financial hurdles may be down the road. Mr. Bush's intention to extend his tax cuts indefinitely, and to add new ones, would drain more than $1.4 trillion from government coffers over the next 10 years.
Liberals just can't see that tax cuts are good for Americans, even though Kennedy started the tradition in 1964.
The Big Dig is 7.8 miles of road under Boston. Originally projected to cost $2.6 billion, cost overruns and years of delays caused the eventual pricetag to be closer to $14.6 billion (a mere 562% over budget).
In November of 2004, hundreds of leaks that were pouring millions of gallons of water into the tunnels were discovered . And now, things just got worse.
The problem area in the Interstate 93 tunnel under Boston Harbor is considered in worse shape than a section of the tunnel that erupted in a gushing leak last September.
Big Dig officials stressed that the tunnel is safe to drive through, although the defects could mean more headaches for motorists diverted onto city streets while repairs are made.
I made my feelings on this engineering nightmare clear over two years ago:
For comparison, the "Chunnel" is a 31-mile long tunnel that goes under the English Channel. It took three years to build and cost 13 billion dollars.
To recap, the English and French collaborated to build a tunnel under part of an ocean that is four times as long, at less cost, and in one sixth the time.
I've been through the Chunnel and I'd do it again. But you'll never find me under the streets of Boston. I gare-ron-tee!
Treasury officials say, thus far, in fiscal 2005, which began last Oct. 1, they have taken in nearly $100 billion more than previously projected. Individual tax receipts were up an impressive 21 percent over last year. Business tax revenues rose a whopping 48 percent. They took in a record $61 billion on June 15 alone.
"The numbers are an eye-popping vindication of the Laffer curve [a theoretical correlation between tax rates and growth] and the Bush tax cut's real economic value," tax-cut crusader Stephen Moore wrote in the Wall Street Journal. ...
Now, however, it is important to focus on what works and what doesn't. Supply-side tax cuts clearly work. They worked in the 1960s when the Kennedy tax cuts produced budget surpluses. They worked in the 1980s when the Reagan tax cuts led us out of a severe recession. And they are working now, chopping the deficit down in giant $100 billion increments.
Just think what will happen when we tear down the IRS . . .
The pace of hiring picked up last month and services industries expanded, providing evidence the economy continues to grow in the face of higher energy prices, economists expect reports this week to show. ...
The economy probably expanded at a 3.3 percent annual rate in the second quarter and will grow at a 3.4 percent pace this quarter, according to a Bloomberg News survey of economists last month. Growth exceeds the 3 percent annual average during the past three decades. The economy grew at a 3.8 percent rate in the first quarter and 4.4 percent for all of last year.
Just for comparison's sake, let's take a look at France. Hmmm, the French first-quarter GDP growth was 0.3 percent, unemployment remains at a five-year high of 10.2 percent, and consumer confidence for June was the weakest since March 2003. But not to worry, the French prime minister promises "action".
U.S. factory orders increased in May by the most in a year and sales of business equipment increased, a sign manufacturing will provide a bigger boost to the economy in the second half than in the first.
Manufacturing productivity, fueled by rapid technological innovation, is way up. Exports are stronger, too. We make more, sell more and ship more then ever before. ...
Manufacturing remains the No. 1 contributor to U.S. economic growth, making up to 13 percent or $1.5 trillion of this nation's $11 trillion gross domestic product (GDP). Government and real estate contribute 12 percent each to GDP, business services add 11 percent. The retail sector adds half of what manufacturing kicks into our economy.
Manufacturing represents 62 percent of all U.S. exports of both goods and services, or about $1.1 trillion. It accounts for 11 percent of the entire U.S. work force, and 13 percent of all private sector employment.
Manufacturing accounts for about 13 percent of the U.S. economy. The share is still large enough for the U.S. to have the world's largest manufacturing economy.
After he found out that the person performing the role of a Kosovo truck driver during the training was, in fact, a German soldier, the minister suggested that in future exercises, the acting jobs should be given to the unemployed.
The economy logged a solid 3.8 percent growth rate in the first quarter of 2005, a performance that was better than previously thought and a fresh sign the expansion is on firm footing.
"This is the third straight quarter where growth has been 3.8% or greater, indicating that the economy is expanding well above its potential," said Augustine Faucher, an economist for Economy.com.
Core inflation was revised lower.
Now if our elected officials would only start shrinking the size of government perhaps we can kill this whole Keynesian fad once and for all.
According to the nonpartisan Tax Foundation (founded 1937), one third of all tax returns filed last year (representing over 42 million individuals and families) resulted in either no tax liability or a "refund" from the government. Another 15 million individuals and families didn't earn enough to even file.
A tax return often represents several people in a family. So when all the dependents of a filer are counted, about 120 million Americans – 40 percent of the population – are outside the income tax system, according to the Tax Foundation.
For those who think that wealth redistribution only occurs in socialist countries, consider this:
For instance, a married couple with three children and $40,000 in income can take a $9,700 standard deduction and $15,500 in personal exemptions, bringing their taxable income down to $14,800. They would owe $1,505 in taxes.
But with three children, they would get $3,000 in child credits, leaving them with no taxes owed – and a $1,495 refund check.
In other words, my tax dollars are being given to some schmuck just because his dick works.
The press is increasingly obsessed with a "real estate bubble", very similar to the tech bubble that burst in the late 90s, wiping out California companies and 401Ks across the country. Consumers, too, are beginning to worry, as shown by the recent increase in internet searches for the terms "real estate bubble" and "housing bubble".
A real estate bubble is a unsustainable and seemingly inexplicable increase in the price of real estate, accompanied by the sort of speculative behavior that we saw with stocks in the '90s. In the '90s bubble, people went around and bought stocks on margin; they didn't know what they were buying. They tried to flip them. There was an assumption that things would just go up and up and up, and when the bubble burst, a lot of people got burnt. And I think in certain markets, one of them being New York, we're seeing a lot of that same type of investor-fueled behavior.
Before continuing, a word on what constitutes a too-high price for a home. Simply put, it is the relationship of price vs. income (in the form of rent). From the Economist:
The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier.
A bubble, if it exists, poses two dangers. First, housing prices could fall, meaning that if you purchased a home this year and the bubble bursts next year, your house would be valued far less than you paid. This won't be a problem for some, but we are a highly mobile society and houses generally get sold after a few years when we move out to other locales or move up to an upgraded home. With a devalued house, a family will not even get what they paid for it and could take a loss of tens of thousands of dollars. So much for building up equity.
Second, the housing boom has been fueling U.S. economic growth. A bubble pop would put thousands out of work and halt the infusion of cash into the economy — as much of the cash is from families refinancing their homes at historically low rates and using about a third to pay off other high-interest loans (like credit cards) and putting the other two-thirds back into circulation by making purchases.
Another economic consideration is that a housing bust would hit consumer's psyche hard, affecting confidence and spending across the board. This bust, if it happens, is a little different from those that have come before:
Assessing the psychological impact on homeowners is more difficult. This time around, price weakness is happening when the economy is strong, and that's highly unusual. "The last time we had outright price declines, we were in recession," notes David W. Berson, chief economist at mortgage lender Fannie Mae. So when it comes to gauging consumer confidence, "it's hard to disentangle the job-loss effect from the home-price effect." What does seem certain is that, if prices level off or rise only a bit, owners, especially on both coasts, may feel less wealthy, even though they will not have actually lost money. That could be another drag on consumer demand since studies show about 5.5% of new housing and stock wealth is spent.
So where is this housing boom coming from? A good explanation comes from Time Magizine (HT to Daniel Gross):
Instead, say Leamer and other bubbleologists, what's driving the market is low interest rates, herd psychology, speculation and the expectation of unending price increases. (One study found that Los Angeles homeowners expect their home values to grow 22% every year for a decade.) Meanwhile, promiscuous lenders are throwing money at buyers like beads during Mardi Gras. "Anybody who can crawl in off the street can get a loan with 0% down at three or four times their income," Leamer says.
Even with increased concern about the bubble, there has been no slowdown in purchases — in fact, there are signs of speculative home purchases are continuing to rise:
The volume of mortgage applications hit another weekly high for the period ended June 10. However, potentially riskier varieties of mortgages are gaining popularity. There also appears to be an increase in speculative buying.
On the surface, this could be leading up to a very bad situation indeed, as documented on the incredibly pessimistic site Stock Market Crash:
After the housing bubble pops, prices will likely plummet for at least a decade, unfortunately. Too pessimistic? Consider this: After the 1989 Japanese housing bubble, housing prices tanked for 13 straight years! The Japanese housing bubble was a similar situation to what we are currently experiencing.
Even if the housing crash isn't nearly as drastic, it could still take at least 9 years to recover. This is precisely what occurred after 1988 as the United States housing boom ended. National housing prices finally reached previous 1988 levels in 1997!
From what we have seen, it is inevitable that we are in a housing bubble that will end in an economic crisis. The economy always finds a way to punish excess.
But there are differences between a housing bust today and the tech bust in the late 90s. From Business Week
Contrast today's home market with the economy's last bubble -- in tech stocks. In the late 1990s the NASDAQ surged 40% a year as people threw billions of dollars into companies that had no profits or coherent business plans. That's a far cry from 2005's housing picture. The supply of housing has not outstripped demand, and price increases have been supported by gains in jobs and incomes.
The deficit is shrinking. We've seen 24 straight months of economic growth and the unemployment rate is down to 5.1%. The trade deficit is down. Housing starts are up. The economy of 2004 was the best in five years... just to name a few things. There are so many different indicators
telling us that the economy is doing very well, yet only a third of Americans can see it? I just don't get it.
Still, the very real possibility exists that many, many people will purchase a home this year only to have to sell it in the next couple of years, losing thousands in the process — not to mention all those speculative buyers. And some, like Clif Droke, have real concerns:
There will come a point along this declining slope in rates where it won't matter that rates are approaching zero, because hyper-deflation will have by then become entrenched in the financial superstructure and will begin wreaking havoc on all forms of financial assets, including real estate. But we're still a few years from that point along the curve. So for now, the housing bubble continues.
But should everyone be concerned about the real estate bubble? No, because a pair of (believe it or not) physisists who correctly predicted the timing of the UK real estate bubble have performed a state by state study of the U.S. (using econophysics) [PDF format] and determined that although there is a similar bubble here, it affects only 22 of the 50 states.
A glace at the overall U.S. housing market shows that prices are increasing rapidly over time. If there were no bubble, the chart below would exhibit a straight line as housing prices keep pace with normal growth and inflation.
[Full graph with regional breakdown is available in the PDF.]
But a look at some of the "bubbling" states clearly shows that the graph is being skewed. [Again, full graph of all 22 states in full bubble mode is in the PDF.]
States from Alaska to Florida are experiencing outrageous housing increases.
21 states across the south and mid-west have perfectly normal price growth. To date, the home buyers in this region has little need to fear.
Happily, Tennessee is among the "normal growth" states as I am preparing to move later this year. [As you guessed, full chart is in the PDF.]
The remaining 8 states fall into the "recently bubbling" category. That is, normal growth was occuring until this year but prices have begun rising unreasonably high [as can be seen in a chart in the study].
The study clearly shows the affected regions.
Non-bubbling states are in green, recently-bubbling states are in magenta and clearly bubbling states are in red. Hawaii and Alaska are not shown, but both are in the clearly bubbling category.
But before any of you non-bubbling staters breathe a big sigh of relief, remember what a burst will do for the economy. Now imagine that on a global scale.
According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.
The economy grew by an encouraging 3.5 percent in the first quarter of the year — up from a 3.1 percent estimate last month but slightly less than the 3.6 percent economists had expected. Investors welcomed the report as a sign that the economy was still expanding and inflation risks had lessened.
The euro fell to a seven-month low against the dollar on Thursday on persistent worries that France will reject the EU constitution in Sunday's referendum, while the dollar was well bid before U.S. economic growth data.
Europe's single currency fell as far as $1.2517 after London's Times newspaper reported French centre-right leader Nicolas Sarkozy had said in a private meeting with ministers that the vote was "lost".
One in four married women who work are making more money than their husbands. Full-time working women as a whole are making 80% of what men make.
Before you get your panties in a wad over this injustice, consider this:
Economists and academics attribute the remaining 20 percent pay gap to men's leg up on seniority, having been in the work world longer than women.
Studies also have shown that men work more overtime -- raising their reported weekly incomes -- and tend to choose occupations, such as engineer and pilot, that pay more than jobs that women traditionally have preferred, such as social worker and teacher.
As more and more Americans consider hybrid vehicles, state and federal politicians are growing concerned that they are going to lose a huge source of funds: the taxes levied on gasoline. One "fix" being considered is truely frightening:
Here's the nuts and bolts of the plan: Your car mileage would be tracked via a global positioning satellite from an onboard computer in your car. If that in itself isn't creepy enough, the eye in the sky can also tell when you cross state lines. Yet another privacy invasion - justified, of course, because each state will have its own mileage fee. The fees are calculated - the state and federal governments getting their fair shares - and the driver makes periodic payments.
The World Competitiveness Yearbook (pdf format) from IMD (a Swiss non-profit) for 2005 is available. They draw some surprising conclusions about the relationship between taxation and business competitiveness, suggesting that high taxes may not strangle economic growth (ht to Author's Seat):
Tax policy is no substitute for competitiveness. The level and type of taxation can enhance or hinder competitiveness, but cannot create it. The real "engines" of competitiveness are science, technology, entrepreneurship, finance, logistics and education. Tax still matters in as much as it is part of the overall cost of doing business- one of the major reasons why companies relocate abroad. Thus, the real impact of taxes is on job creation or destruction. A higher cost of business can be somewhat offset by improving the ease of doing business. Thus, it would appear that as far as competitiveness is concerned, the simplicity of the tax system is just as important as the level of taxation per se. In this regard, a simpler flat tax system may be more valuable in the long run than a complex low tax regime."
The Treasury Department this week reported there would be a $54 billion swing from projected deficit to surplus in the April-to-June quarter, after an unanticipated gush of tax payments poured into the Treasury before the April 15 deadline. That prompted private forecasters to lower their deficit projections for the fiscal year that ends in September. ...
But in the short term, many forecasters said the budget deficit appears to have crested.
"I think it has turned the corner," said David Wyss, chief economist at Standard & Poor's, the credit rating agency. "My guess is 2004 will have been the worst year."
And the real story behind the numbers is the successful supply-side experiment that began in the middle of 2003, when investment tax rates were slashed on capital gains and dividends. With new incentives to counter the deflation of investment during the 2000-02 period, both capital formation and economic growth came back from the dead.
Real GDP since the tax cuts has averaged 4.3 percent at an annual rate, whereas growth was only 2.4 percent during the anemic recovery that preceded the tax cuts. The latest government data on tax collections for calendar-year 2004 confirm a tax-cut-led recovery through the explosion of tax receipts at lower tax rates. Once again, the Laffer curve is working.
Being first-generation rich is not new for Americans. Drs. Stanley and Danko say, "More than 100 years ago the same was true. In The American Economy, Stanley Lebergott reviews a study conducted in 1892 of the 4,047 American millionaires. He reports that 84 percent were nouveau riche, having reached the top without the benefit of inherited wealth."
Flat taxes, once a fantasy of free-market ideologues, are sweeping across the European Union and could be introduced in more than 10 of the bloc's 25 member states. ...
In place in Slovakia and the three Baltic states, which joined the EU last year, flat taxes are credited with helping them grow fast and creating thousands of jobs.
Bush's reelection platform included IRS reform and I was pleased to hear him refer to it in his press conference last night, but he's been stymied by Democrats on such simple things as an ambassadorial confirmation. Hopefully we'll be talking about this next year.
In decades past the UAW negotiated exceptional medical benefits for their workers along with a solid pension plan. General Moters went along because accounting practices for "post-employment benefits" didn't affect the current bottom line. Besides, the major competitors (Ford and Chrysler) were doing it too.
Accounting practices changed about 15 years ago and these expenses are now fully visible. And while the pension fund is doing relatively well (i.e., not yet in crisis mode), the medical plan is $57 billion in the hole:
GM spokesman Jerry Dubrowski says the company expects to pay $5.6 billion in health care costs this year for 1.1 million people covered by its plans. That's up from the $3.9 billion it shelled out in 2001 to cover 1.2 million people.
Michigan's glamorous governor, Jennifer Granholm, stood before a bank of TV cameras last week in the sunny atrium of Toyota's Ann Arbor R&D center and gushed: "We are excited about Toyota's future in Michigan, and we want to roll out the welcome mat." In front of her were a half-dozen smiling Toyota executives who had just closed on a deal for a $150 million expansion of their Michigan research lab, where they will incubate more new models in their drive to overtake GM as the world's No. 1 automaker.
Maker of America's top-selling car (the Camry), Toyota sells more cars in the U.S. than any other foreign automaker. They are on the cutting edge of hybrids and leaving Detroit in the dust. And what's more, they are aggressively going after the last bastion of American loyalty, opening their sixth manufacturing plant in America (down around San Anton') in a bid to take away the full-size pickup truck market.
Haircuts, dry cleaning and clothes could soon cost the same for men and women in Ontario if a bill currently before the legislature passes.
Liberal Lorenzo Berardinetti, who is pushing the bill to outlaw what he calls "gender-based pricing," says there is no good reason why men and women should pay different prices for similar products and services.
It's called supply and demand. Women are willing to sit in an uncomfortable chair and have silly things done to their hair involving a number of lotions and arcane accouterments and for some reason they are willing to pay more than a hundred dollars to be so tortured. I, on the other hand, am only willing to spend $15 (including tip) to have my hair cut so short that it will last two months before I have to do so again.
Dry cleaners charge more for a blouse that is indistinguishable from a shirt except for the location of the buttons and buttonholes because women pay it. If there are too many dry cleaners and one wants to steal business, he'll drop his prices.
The president of the Federal Reserve Bank of Philidelphia predicted that the U.S. economy would experience an annual growth of 3.5 to 4.0 percent in 2005 and 2006.
Meanwhile, the socialist state of Germany has an unemployment rate of 11.7%, the highest since the days of the Great Depression [via PoliPundit].
Davids Medienkritik is helping to organize a pro-American rally to coincide with the Bush visit. They have flyers and instructions and even promise media coverage from "Several news networks and even SPIEGEL ONLINE will be there!"
Taking a look through the plethora of comments I found this post that I feel compelled to reproduce:
Hm. Here's a quiz on America that works wonders when dealing with enlightened, sophisticated, liberal, multi-cultural Germans. How many cabinet members of African-American, Hispanic or Asian descent are there in the Bush administration?
Even though programming resources are cheaper in China, supervisor resources cost 25% more so the overall project cost is about the same. At least that is the claim of Sudip Banerjee, president of the enterprise solutions division at India-based tech services giant Wipro Technologies.
I've got about ten great ideas for business ventures if anyone is interested in throwing a mill or two my way. And not all of them involve blogging or politics. OK, all the good ones do.
Larry Kudlow has the scoop on some good news for the nation in the economics department. Namely, that the federal deficit for the fiscal year that began in October is already $11 billion less than last year's. Tax collections grew by 10.5% while government cash outlays only increased 6.1%.
But the real story is why:
With 50 percent cash-bonus expensing for the purchase of plant and equipment, productivity-driven corporate profits ranging around 20 percent have generated a 45 percent rise in business taxes. At lower income-tax rates, employment gains of roughly 2.5 million are throwing off more than 6 percent in payroll-tax receipts. Personal tax revenues are rising at a near 9 percent pace.
Meanwhile, in the wake of strong stock market advances over the last two years, non-withheld revenues from individuals -- including investor dividends and capital gains that are now taxed at only 15 percent -- have jumped by over 14 percent.
There's more but it all boils down to one thing: Bush's tax cuts have released the stranglehold the government had on the economy. Imagine that.
Online ads for tech jobs have increased, IT services companies have been hiring, and analysts are warning companies to take steps to retain prized workers as the job market tightens.
But not all the news over tech jobs adds to holiday cheer. The number of payroll jobs in computer and electronics product manufacturing dropped by 3,800, to 1.34 million. That figure has been dropping since August. In addition, the number of management and technical consulting services positions fell by 2,300, to 794,100.
Technology workers' confidence in the job market fell in November, according to a study released Wednesday. Despite worker pessimism of late, jobs in computer systems design and related services have been rising since April and are up by 48,400 since last November.
The bigger the hole, the more room for money to fill it up.
The Big Dig is 7.8 miles of road under Boston. Originally projected to cost $2.6 billion, cost overruns and years of delays caused the eventual pricetag to be closer to $14.6 billion (a mere 562% over budget). Why this was funded at the federal level I'll never understand. Oh wait -- it's called pork and Kennedy is was a powerful man.
Engineers hired to investigate the cause of September's massive Big Dig tunnel leak have discovered that the project is riddled with hundreds of leaks that are pouring millions of gallons of water into the $14.6 billion tunnel system....
Finding and fixing all the leaks will take years, perhaps more than a decade, said Jack K. Lemley, an internationally known consultant hired by the Massachusetts Turnpike Authority to investigate the problem. Just repairing the section of wall where the September leak occurred will take up to two months and require closing of traffic lanes.
The engineers also said they have discovered documents showing that Bechtel managers were aware that the wall breached this fall was deficient from the moment it was built in the late 1990s, yet did not order it replaced and did not inform state officials of the situation.
A lawsuit is being considered. Criminal prosecution would be more appropriate.
I am shocked that a few miles of tunnels would be so difficult to build. As I noted in June of last year, the "Chunnel" is a 31-mile long tunnel that goes under the English Channel. It took three years to build and only cost 13 billion dollars.
I've been in the Chunnel and didn't think twice. But I'd be terrified of venturing into the Big Dig.
Honda Motor is spending $270 million to build a new plant in Georgia and upgrade plants in Ohio and Alabama. 600 jobs across the three states will be created in the process.
Outsourcing you read about on the front page of the NY Times and is the subject of left-wing ideologue speeches. Insourcing stories are buried below the fold and well in the back.
Together, Honda's Ohio and Alabama engine plants have annual production capacity of 1.46 million automobile engines and supply all Honda and Acura vehicles produced in North America.
Honda now has the annual capacity to produce 1.4 million cars and light trucks in North America at five auto plants in the U.S., Canada and Mexico.
Nearly 8 of 10 Honda and Acura cars and light trucks sold in America are produced in North America as well.
The winner of the 2004 Nobel Economics Prize was shared between Norwegian Finn Kydland and American Edward Prescott for their work in business cycle research that has led to monetary policy reform in a number of countries.
"In a highly innovative way, the laureates have analyzed the design of economic policy and the driving forces behind business cycles. Their work has not only transformed economic research, but has also profoundly influenced the practice of economic policy in general, and monetary policy in particular," the Nobel jury stated Monday.
In other words, this guy is not only an expert in macroeconomics and policy, he has helped shape the economies of entire nations. He knows his stuff.
Lower tax rates provided an incentive to work, Prescott said...
The American analyst, who is a professor at Arizona State University and a researcher at the Federal Reserve Bank of Minneapolis, said a large tax cut in 1986 had lowered rates while collecting the same revenue.
But "in the early '90s the economy was depressed by the tax increase in '93 by about four percent, and it's right at that level now," Prescott said.
The media values the opinions of Nobel Laureates almost as much as they do high-school educated actors, so one would think that the winner of the Economics Prize supporting the case for tax cuts would be news. In fact, it should generate some op-eds in the NYTimes that calls for more tax cuts.
U.S. machine tool demand in August rose sharply from a year earlier as manufacturers ratcheted-up purchases amid signs the economy is improving, two industry trade groups said in a report released on Sunday.
The American Machine Tool Distributors' Association (AMTDA) and the Association for Manufacturing Technology (AMT) said U.S. machine tool demand stood at $225.52 million in August, up 54.2 percent from $146.27 million in August 2003.
In the first eight months of 2004, machine tool demand stood at $1.779 billion, up 38.4 percent from $1.285 billion in the same 2003 period, according to the report.
"Exhibitors at IMTS (the International Manufacturing Technology Show) didn't need numbers to tell them that a capital recovery is underway," John Byrd, AMT president, said in a statement. "They came away from the show with orders and with a renewed optimism about the growing manufacturing revival."
For the week, the Dow ended up 1.45 percent, while the S&P advanced 1.93 percent and Nasdaq rose 3.34 percent. All three indexes turned in their highest weekly percentage gain in six weeks.
The Commerce Department reports that U.S. economic growth for the 2nd quarter was stronger than previously thought. The new numbers put U.S. GDP expansion at 3.3%, up from the 2.8% originally estimated but below the 4.5% of the first quarter.
The GDP figure was the second and final revision to second-quarter performance and handily outpaced Wall Street economists' forecasts for a 3 percent rate of growth.
Though well down from the first quarter's rate of expansion, it left the economy in better shape than anticipated for a widely forecast pickup in growth in the second half of the year.
"It looks like the economy wasn't all that soft in the second quarter," said economist Gary Thayer of A.G. Edwards and Sons Inc. in St. Louis, Mo. "Generally, it shows the economy healthy and seeing growth in most categories."
With this news it is expected that John Kerry, in keeping with his tradition of doing everything wrong he possibly can during his campaign, will switch his message from Iraq to the economy beginning with tomorrow night's debate.
The measure approved Wednesday night will keep the child tax credit at $1,000. It also continues an expanded 10 percent tax rate that lowers tax bills for virtually all taxpayers and continues to offer married couples tax savings.
In addition, the measure will also extend for one year relief for the alternative minimum tax, which was intended to make sure that wealthy Americans did not escape paying taxes but is starting to ensnare more middle income taxpayers.
While Democrats had initially insisted that the measure be paid for by increasing taxes in other areas, Republican supporters of the proposals are expecting the tax cuts to pass both the House and Senate by wide margins. Democrats are not expected to try to block the popular tax relief measure with an election only weeks away.
Senate Minority Leader Tom Daschle, in a tight re-election race in South Dakota, said last week that he would support the package even if it did not include revenue offsets.
The media crowed about what a great job Clinton was doing as he ran for reelection, just as they are bemoaning the horrible state of the economy now that Bush is running. Bob Rayner takes a comparitive look at 1996 and our most recent numbers:
Unemployment rate is at 5.4% -- the same as it was in 1996.
Typical worker's hourly wage, adjusted for inflation, is worth 9 percent more than it was eight years ago.
Americans living in poverty was 12.5% in 2003, compared to 13.7% in 1996. That percentage should decrease this year, thanks to the 1.44 million jobs created since Jan. 1.
Children living in poverty was 17.6% in 2003, compared to 20.5% in 1996.
Americans lacking health insurance was15.6% in 2003 and in 1996. The difference is that number should decrease with the growing number of jobs in 2004.
Median household income (i.e., the middle of the middle class) was 4.5% higher in 2003 than it was in 1996, after adjusting for rising prices. 2004 should be even better due to growing employment and the expanding economy.
Home ownership was 65% in 1996, compared to 69% today.
Stock prices, as measured by the Dow Jones industrial average, are about 80 percent higher than they were eight years ago, even though consumer price inflation has advanced less than 20 percent over that period.
Bob sums it up nicely:
Today, the percentage of Americans who are uninsured or unemployed is identical to 1996, even though we're less than three years removed from the end of the last recession and in'96 we were better than five years into an economic recovery.
Compared with 1996, more Americans own homes now, their paychecks have greater buying power, and fewer live in poverty. Middle-class income is higher, the stock market is up, and interest rates are lower.
In 1980, 53.8 percent of black households made less that $25,000 (in 2003 dollars), which fell to 43.4 percent in 2003. The ranks of the black middle class ($25,000 to $75,000) increased from 40.5 percent to 42.9 percent. And the percentage of black families falling into the Times' definition of rich (over $75,000) rose from 5.8 percent to 13.7 percent.
For more and to see how he got there:
The clear implication is that the middle class has suffered under Republican policies -- why else start in 1980, the year Ronald Reagan was elected? If the chart had started in 1992, the year Bill Clinton was elected, it would have shown the exact same trend. In 1992, those earning between $25,000 and $75,000 constituted 47.9 percent of all households. By 2000, this fell to 46.1 percent. I don't remember the Times calling attention to this fact.
The reason is quite simple: This is actually good news, not bad news, as the Times report strongly implies.
First, it is important to know that the data in the Times story are adjusted for inflation. This is mentioned in a footnote to the chart, but nowhere else in the article. It might be useful to know that those with an income of $11,825 in 1980 now make $25,000, or that an income of $75,000 last year is the same as an income of $35,475 in 1980.
In other words, the data take account of increased prices on everything from gasoline to college tuition. Yet the article implies that increased costs for these things has taken place without a concomitant increase in household income. The effect is to make middle class families appear worse off, when in fact most are far better off than they were in 1980.
The most egregious error in the article is the clear implication that the percentage of those defined as the "middle class" has fallen because many of those who used to be considered middle class have become poor. This is totally untrue. In fact, the ranks of the poor have fallen along with those of the middle class.
Using the Times' characterization of any household with an income below $25,000 in 2003 as being poor, what do the data show? We see that this group fell from 33.1 percent of the population in 1980 to 29 percent in 2002. Looking at the data from the other end, we see that the percentage of those making more than $75,000 has risen from 14.9 percent of the population in 1980 to 26.1 percent in 2003.
In other words, the ranks of the poor and middle class have shrunk for one reason only -- more of them are rich! How can it not be a good thing for society that fewer people are now making low incomes and more are making high incomes?
Just to show that the income gains have not been confined to those who were relatively well-to-do to begin with, there has also been an impressive increase in the percentage of black families with middle- and upper-class incomes.
In 1980, 53.8 percent of black households made less that $25,000 (in 2003 dollars), which fell to 43.4 percent in 2003. The ranks of the black middle class ($25,000 to $75,000) increased from 40.5 percent to 42.9 percent. And the percentage of black families falling into the Times' definition of rich (over $75,000) rose from 5.8 percent to 13.7 percent.
Most economic observers were too busy fretting over the lackluster gain of 32,000 payroll jobs in July to take notice of the other positive indicators, let alone the quiet little study that acknowledges payrolls have a problem.
The study describes how job-changing can inflate the payroll survey's numbers artificially. When worker turnover is brisk, as in the late 1990s, millions of workers are counted twice when they switch jobs. About 3.9 million people changed employers during a typical month during the 1990s, but only 3.1 million do so now....
There's an alternative. The U.S. Labor Department's household survey, which is used to calculate the unemployment rate, is not subject to the job-changing effect. It surveys 60,000 households and counts self-employed consultants, real estate agents, farmers and other non-traditional workers who aren't on old-style payrolls.
Yet because the household survey shows 2 million more working Americans under President Bush than ever before, it has been attacked for partisan reasons.
The Congressional Budget Office has completed a study of Effective Federal Tax Rates Under Current Law, 2001 to 2014 (pdf format). It is a fascinating little document that examines the effects of the three "Bush tax cuts for the wealthy":
Lawmakers enacted three major tax bills between 2001 and 2003. The Economic Growth and Taxpayer Relief Reconciliation Act of 2001 (EGTRRA) lowered rates, increased credits, and offered relief from marriage penalties and from the alternative minimum tax (AMT). The Job Creation and Worker Assistance Act of 2002 (JCWAA) increased depreciation allowances for some property and altered certain provisions concerning operating losses. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) accelerated some of the provisions in EGTRRA and temporarily raised exemption levels for the AMT. None of the tax provisions in the three laws is permanent, and all of the provisions will expire by 2011. Furthermore, because many provisions phase in and phase out between 2001 and 2010, taxes change in every year through 2011.
First, you can check out where you are in the grand scheme of things:
Lowest Quintile
$ 14,900
Second Quintile
$ 34,200
Middle Quintile
$ 51,500
Fourth Quintile
$ 75,600
Highest Quintile
$ 182,700
So if your household makes between $51,500 and $74,599 (inclusive), then you are in the "Middle Quintile".
Now let's examine your effective tax rate and how the tax cuts help you:
Total Effective Federal Tax Rate Under Current Tax Law, Based on 2001 Incomes, by Income Category, 2001 to 2014
Income Category
Lowest Quintile
Second Quintile
Middle Quintile
Fourth Quintile
Highest Quintile
2001
5.4
11.6
15.2
19.3
26.8
2002
5.3
11.6
15.0
19.1
25.4
2003
5.2
11.0
14.5
18.5
24.4
2004
5.2
11.1
14.6
18.5
23.8
2005
5.5
12.0
15.6
19.6
26.3
2006
5.6
12.1
15.7
19.8
26.5
2007
5.7
12.3
15.9
20.0
26.5
2008
5.8
12.4
15.9
20.1
26.4
2009
5.9
12.4
16.1
20.4
27.1
2010
5.8
12.3
16.1
20.5
27.1
2011
7.8
14.2
17.6
21.8
28.5
2012
8.0
14.4
17.8
22.0
28.6
2013
8.1
14.5
18.0
22.2
28.7
2014
8.3
14.7
18.2
22.4
28.8
Heavens to Mergatroid! The tax cuts didn't seem to help out anyone! By 2010, every quintile is paying more taxes! And those wretched poor people in the lowest quintile! Even their effective tax rate goes up 4/10ths of a percent by the time the tax cuts sunset.
But wait, there's more! How would everyone have faired if the tax cuts hadn't been put into place?
Total Effective Federal Tax Rate Under 2000 Tax Law, Based on 2001
Incomes, by Income Category, 2001 to 2014
Income Category
Lowest Quintile
Second Quintile
Middle Quintile
Fourth Quintile
Highest Quintile
2001
6.2
12.8
16.1
20.1
27.3
2002
6.4
12.9
16.3
20.3
27.4
2003
6.5
13.1
16.4
20.4
27.5
2004
6.7
13.2
16.5
20.6
27.6
2005
6.8
13.3
16.6
20.7
27.7
2006
7.0
13.5
16.8
20.9
27.8
2007
7.2
13.6
16.9
21.1
28.0
2008
7.3
13.8
17.1
21.2
28.1
2009
7.5
13.9
17.2
21.4
28.2
2010
7.6
14.0
17.4
21.6
28.3
2011
7.8
14.2
17.6
21.8
28.4
2012
8.0
14.4
17.8
22.0
28.5
2013
8.1
14.5
18.0
22.2
28.7
2014
8.3
14.7
18.2
22.4
28.8
Looking at that bottom quintile again we see that without the "tax cuts for the wealthy", the poorest among us would have a 1.8% increase in effective tax rate by 2010: they would be paying 1.4% more than with the Bush tax cut. In fact, as a percent of income, the lowest quintile benefits more than any other class of citizen.
The bottom line?
Relative to the situation in 2000, the three major tax laws enacted between 2001 and 2003EGTRRA, JCWAA, and JGTRRAreduce effective federal tax rates for each quintile in every year from 2001 through 2010.
So, the tax cuts for the wealthy benefits everyone. I guess that means that Democrats think that anyone making more than $14,900 a year is rich!
President Bush said Tuesday that abolishing the U.S. income tax system and replacing it with a national sales tax was an idea worth considering.
Say hello to a second term!
Opponents say such a system would not be in the best interests of the poor and the middle class who would pay the same tax rate as the wealthy even though they have less disposable income.
Bull! If you have more, you spend more! You don't tax necessities like food, milk, diapers, and electricity/gas. But you tax furniture, pool chemicals, caviar, new cars, and services. The poor could end up paying zero tax (but they won't because they'll keep on smoking and drinking beer) but those with money spend money.
Plus you tax the income of the black marketeers -- drug dealers and mob bosses buy clothes and cars but don't report an income!
Plus a hated bureaucratic institution is eliminated, saving millions in expenses. Sales are already taxed so much of that infrastructure is already in place. According to Empower America
In 1995 small corporations spent a minimum of $382 in tax compliance costs for every $100 they paid in income.
Pre 9/11, the IRS was twice as big as the CIA and five times the size of the FBI (kind of tells you where our priorities were, eh?).
The current 7-million-word long tax code is so complex that even the "experts" can't figure it out. Each year Money magazine sends out identical tax returns to 50 top tax preparers -- and gets back 50 different answers.
One year, the IRS could not account for how it had spent 64% of its budget.
After a brief rest in June, the economy is once again going full speed ahead.
``Things are definitely recovering,'' said William Dudley, chief U.S. economist at Goldman, Sachs & Co. in New York. ``The weakness in June that got the market's attention is going to turn out to be an anomaly.'' Dudley forecasts that payrolls increased by 300,000 in July.
An anomaly -- probably due to the media giving so much air time and print space to the Dem's forecasts of doom and gloom.
How much the economy picks up in the second half of the year depends on whether consumers have enough income to boost their spending, which accounts for two-thirds of gross domestic product. Adding to the 1.3 million jobs already created this year is important, since the benefits of mortgage refinancing have all but disappeared and Americans have spent their tax refunds.
Use that as a talking point the next time that some Dem says the president can't really affect the economy (these are the same Dems that credit Clinton with a boom economy, ignoring the tech bubble part of the whole thing). Tax cuts put money in people pockets, which they spend, which fuels the economy, which generates a larger tax base for the government. Classic Reaganomics.
My wife is certainly doing her part. "Really, Honey, we need to buy new carpet. It's the patriotic thing to do!"
Job growth has helped drive up wages and salaries, which increased 7.2 percent at an annual rate from January through May. That's twice as much as last year, the latest figures from the Commerce Department show.
The Fed noted in its ``beige book'' survey of regional economic conditions last week that some employers are having trouble finding workers with the right skills to fill openings.
Note that these are skilled jobs, not the minimum wage jobs that Dems say are the only jobs coming available.
Regional surveys have shown that manufacturing snapped back in July after dropping in June. An index of Chicago-area manufacturers and other businesses rebounded because of more orders, increased production and a rise in backlogs. The index of unfilled orders, a sign of the strength of demand, rose to the highest since July 1994, according to the National Association of Purchasing Management-Chicago.
The Federal Reserve Bank of Philadelphia's index of manufacturing rose to 36.1 from 28.9, and its measure of employment was the highest ever. The New York Fed's Empire State index rose to 36.5 from 29.9, expanding for a 15th month amid increased orders and hiring.
The Institute for Supply Management on Wednesday is also expected to report an increase in its index of services and other non-manufacturing business to 61.8 in July from 59.9.
The number of Americans signing up for unemployment benefits fell more steeply than expected last week, a government report showed on July 22, 2004, reinforcing market perceptions of a buoyant U.S. labor market. First-time claims for state unemployment insurance aid dropped 11,000 in the week ended July 17 to 339,000, down from a revised 350,000 in the prior week and well below the 394,000 for the same period a year ago, the Labor Department said.
The National Federation of Independent Business said its monthly small business optimism index reached 103, continuing a 15 month string above 100, a record in the survey's 18-year history.
"Sales were strong, so inventory was taken off the shelves as fast as owners put it out," said NFIB chief economist William Dunkelberg in a statement.
Nearly one-quarter, or 23 percent, of those surveyed reported higher profits, which most attributed to stronger sales.
In 2000, the Bush was bashed for "talking down" an economy that data shows was already in a recession. In 2001/2002, the economy stayed stable and didn't "double dip" because a trusting citizenry did what Bush asked -- keep spending.
And now in 2004, Kerry is doing his damnedest to talk down an economy that is adding almost 10,000 jobs a day over the last three months.
If indeed "it's the economy, stupid!", then we need Bush in the White House cutting taxes to stimulate growth. Kerry's added spending and entitlement proposals will propel us into a spending/taxing frenzy from which it will take decades to recover.
If you're a member of the middle class, Kerry wants to raise your taxes. If you own stocks or a car, Kerry wants to raise your taxes. If you die or get married, Kerry wants to raise your taxes. Even if you use the Internet, Kerry might want to raise your taxes; he said in 2001 that online taxation would be needed in the near future. Kerry voted against the Bush tax cuts. Kerry has promised a tax increase of $700 billion -- and that's a low-end estimate. If he actually fulfills his campaign spending promises, make that estimate closer to $1.7 trillion. Don't be surprised if a Kerry administration transforms economic boom into stagnancy or even recession.
Bloggers, join Wictory Wednesdays simply by putting up a post like this one every Wednesday, asking your readers to volunteer and/or donate to the Bush campaign. Just email PoliPundit at wictory -at- blogsforbush (insert dot here) com to be added to the Wictory Wednesday blogroll, which will be part of the Wictory Wednesday post on all participating blogs. It's good for your eco-ranking, it's good for your traffic, and it's good for your country.
And it helps to keep a hypocritical, liberal compulsive liar and waffler out of the White House!
In fact, many analysts are forecasting that the overall economy, as measured by the gross domestic product, will grow by 4.6 percent or better this year, the fastest in two decades.
There were strong 4.5 percent growth rates in 1997 and 1999, when Bill Clinton (news - web sites) was president and the country was in the midst of a record 10-year expansion.
But if this year's growth ends up a bit faster than that, it will be the best since the economy roared ahead at a 7.2 percent rate in 1984, a year when another Republican president Ronald Reagan (news - web sites) was running for re-election.
"We are moving into a sweet spot for the economy with interest rates not too high, jobs coming back and business investment providing strength," said Diane Swonk, chief economist at Bank One in Chicago, who is predicting GDP (news - web sites) growth of 4.8 percent this year.
I wonder what the morons consumers buying Clinton's My Lie (expertly interviewed by Evan at brain-terminal) would say to that?
America is set to enjoy its best run of rising quarterly profits for almost a decade, with US companies results for the past three months tipped to show a further surge in earnings.
Wall Street analysts forecast that US blue chip groups will rack up a fourth successive quarter of bumper profits growth of 20 per cent or more a feat not matched since the third quarter of 1995.
According to the analysts at Chart of the Day, things look even better fpr the long term.
The bottom line is that significant stock market peaks tend to follow major troughs in the fed funds rate and most of them have occurred from four to ten months after the Fed started raising rates.
Update: There's still the fact that the media continues to exclude a huge segment of the working population from their job growth stories (covered expertly by Bill Hobbs).
Whats happening now as month after month of good news comes out is reminiscent of the Democratic reaction to the Reagan economy back in 1984. First, the Democrats of that era predicted that the recession Reagan inherited would persist because of Reagans wrongheaded dedication to cutting taxes every believing liberal Democrat knew wouldnt work.
However, when things turned around and the economy began to pick up a real head of steam, Walter Mondale, the John Kerry of the day, pooh-poohed the recovery. He proclaimed that while the rich were benefiting from the tax cuts, the only jobs being produced as a result of the Reagan recovery were for hamburger flippers.
Before it was over, Mondale was promising to raise taxes and give the American people the sort of Democratic economic policies he and his fellow liberals just knew that voters craved. He lost 49 states.
In the 1980s and 1990s, many European labor unions, in response to rising unemployment, adopted the policy of "work less, work all." In other words, they obtained shorter hours (ie, more vacations) in order to keep employment up. The problem is that total compensation did not go down in proportion to the shorter hours, thus leading to an increase in pay per hour. Lower productivity and higher unit labor costs eroded firms' willingness to hire, leaving Europe with chronically higher unemployment than in the US.
The Giving USA annual report said donations by individuals, estates, foundations and corporations totaled $240.7 billion in 2003. Researched by the Center on Philanthropy at Indiana University, the survey showed a 2.8 percent increase over 2002, when giving amounted to $234.1 billion.
Adjusted for inflation, donations rose only 0.5 percent in 2003, hovering at about the same rate of growth of 0.6 percent in 2002.
But the estimated contributions amounted to 2.2 percent of the country's gross domestic product, falling just short of the nation's all-time charitable giving high of 2.3 percent of GDP in 2000.
"Charitable giving above 2 percent of gross domestic product is one demonstration of our nation's renewed commitment to the good works done by charities and congregations," Henry Goldstein, chairman of the Giving USA Foundation, said in a statement.
Goldstein attributed last year's increase to a higher household net income, a stronger stock market and improved corporate profits.
Anyone want to blame the Bush tax cuts?
Update: I only thought Bill Hobbs was predictable. He actually blamed the Bush and Reagan tax cuts.
EconoPundit points to a study performed by a Swedish think tank comparing the EU and USA economies. EconoPundit already posted the cool table that shows "In all of Europe there are only four countries in which the average household member's living space is greater than that of his counterpart in the poorest of US families," so I will settle this chart instead:
U S A
B e l g i u m
D e n m a r k
F r a n c e
G e r m a n y
I t a l y
H o l l a n d
S p a i n
S w e d e n
S w i t z
U K
Clothes Washer
90
88
74
88
88
96
89
87
72
78
88
Dishwasher
53
26
36
32
34
18
11
11
31
32
11
Microwave
86
21
31
19
36
6
22
9
37
15
48
Radio
99
90
98
98
84
92
99
95
93
99
90
Television
98
97
98
95
97
98
95
98
97
93
98
Clothes Dryer
82
39
30
12
17
10
27
5
18
27
32
Vacuum Cleaner
99
92
96
89
96
56
98
29
97
93
98
VCR
83
42
63
35
42
25
50
40
48
41
69
Personal Computer
40
22
30
20
20
14
25
11
29
23
25
Phones per 100 people
63
46
61
56
49
43
53
39
68
61
50
Cell phones per 1000
12.4
23.2
157.3
23.8
42.8
67.4
33.2
24.1
229.9
63.5
98.0
TVs per 1000
776
464
536
579
550
436
495
490
476
461
612
Autos per 100
57
41
31
42
49
51
38
na
41
44
3
... For several centuries Europe led the world in terms of prosperity and progress. As little as a hundred years ago, much of the American continent was virgin wilderness. Today, a hundred years later, the USA has completely overtaken Europe to become the unrivalled [sic] leader of the world economy. Most Americans have a standard of living which the majority of Europeans will never come any where near. The really prosperous American regions have nearly twice the affluence of Europe. It is worth reminding ourselves what this means. In these regions the average American can get exactly twice as much of everything as the average European. Which goes to show the importance of an economic policy to stimulate growth.
A few comments are in order. First, I would have been interested in the DVRs per 1000 rather than VCRs. Second, I would have been interested in the number of households with high-speed internet access. Third, on the subject of cars this or this hardly compares to this or this. Finally, how in the name of all that's holy do you live without a microwave?
Over the past year, following the enactment of the president's tax-cut plan, real economic growth has increased 5 percent with only 1.6 percent inflation. After-tax profits have increased 37 percent (fully adjusted for depreciation and capital consumption). Business spending on equipment and software has grown 12.5 percent. Since last August, 1.1 million jobs have been created. Spendable income has increased 4.9 percent in real terms. Consumer spending is up 4.3 percent.
The economy is roaring at its fastest pace in 20 years, and there's no clear reason why the prosperity trends won't continue.
Construction spending registered its best month on record in April and manufacturing activity expanded in May, fresh evidence of the economy's momentum as it headed into summer. ...
The latest snapshot of manufacturing was better than economists were expecting. They were forecasting a reading of 61.5 in May. It marked the 12th straight month that manufacturing expanded. ...
In the construction report, the 1.3 percent advance in April was more than three times the 0.4 percent gain that economists were predicting.
Economists believe more than 200,000 jobs were created last month, building on the 625,000 added in March and April, as employers geared up to meet robust demand after three long years of layoffs and tepid hiring.
While the roaring employment gains in March and April surprised most observers, who had been disappointed by the slow recovery from the 2001 recession, analysts have been quick to embrace the new rosier jobs outlook.
"I'm swinging for the fence this week," said ClearView Economics president Ken Mayland, predicting 300,000 jobs were created last month. "There's just every indication that the labor market is improving very dramatically."
The Labor Department's closely watched payrolls report, due on Friday, is expected to show 216,000 new jobs in May, according to a Reuters survey of economists.
A pickup in U.S. job growth or wages may have begun late last year, months earlier than first thought and when President Bush was still under fire for the jobless recovery, data showed on Thursday.
Revisions to economic growth figures show wages and salaries grew much more in the final quarter of 2003 than originally thought, suggesting employers either hired more workers or boosted pay beyond that shown in early data. The Commerce Department said wages and salaries grew $57.8 billion in the fourth quarter -- a 46.3 percent upgrade to the original measure of $39.5 billion growth. ...
Economists said the large upgrade suggests corporate payrolls may have been growing late in 2003 -- when the Labor Department was reporting mostly stagnant employment.
Stronger-than-anticipated tax revenues combined with tight spending practices over the past few years are allowing 32 states to finish their 2004 fiscal years with surpluses, according to a survey by the National Conference of State Legislatures.
Aren't you glad the Democrats didn't win and start bailing out wasteful legislatures?
After a deep three-year slump that erased more than a million jobs, U.S. technology companies have begun hiring again, marking a so far modest but solid trend that could well brighten the country's economic outlook.
The best news is the money train is starting up again (although hopefully it will never reach the frantic, wasteful days of the internet bubble):
Investments in venture-backed companies are up 29 percent so far this year, to $8 billion, compared with the same period last year, according to Dow Jones Venturewire.
The Washington Times provides these talking points for refuting liberal blathering:
Rep. Nussle, R-Iowa, "The last six months have been the fastest-growing six months that our economy has seen in 20 years -- six months of sustained, gigantic economic growth."
Had no tax cuts been in effect, according to figures supplies by the House Budget Committee, the unemployment rate would have reached a high of 7.5 percent instead of 5.6 percent at the end of February. The difference in real terms is 2.1 million jobs -- that is, the economy would have lost 4.1 million jobs total, instead of 2 million.
If job growth continues at its present rate, the 2.6 million new jobs this year forecast in January by Bush's much-derided chief economic adviser, Greg Mankiw, should be easily achieved.
According to the Congressional Budget Office, the year before Bush's tax cuts the top 20 percent of taxpayers paid 81.2 percent of all income-tax revenues collected by the U.S. Treasury. The year that the tax cuts kicked in, this same group paid 82.5 percent. [So much for tax cuts "for the rich".]
The effective federal tax rate for the lowest-income quintile, or 20 percent, went from 6.4 percent under President Bill Clinton down to 5.4 percent under Bush. The next quintile higher went from 13 percent under Clinton to 11.6 percent under Bush. And the middle-class effective tax rate went from 20.5 percent under Clinton to 19.3 percent under Bush.
Senate Republicans are crafting legislation that would raise the hourly minimum wage by more than a dollar, in an attempt to take a hot-button election-year issue off the table.
The Senate GOP package would be coupled with business-friendly measures to help industry swallow a phased-in $1.10 increase in the nations minimum wage.
Sources say Senate Republicans are hoping to convince business leaders that an increase in the minimum wage is likely this year and that their legislative solution is more palatable than Sen. Edward Kennedys (D-Mass.). Kennedy has proposed raising the minimum hourly wage from $5.15 to $7.
At least the "business-friendly measures" might head off too much of a rise in prices, but a higher minimum wage will increase the number of illegals hired.
Most studies on outsourcing focus on the industry. Global Insight takes a broader look and found that while 104,000 IT jobs were lost last year to outsourcing (aka "off-shoring"), the benefits were much more than just corporate savings:
They contribute significantly to higher output in the U.S., which leads to job increases elsewhere in the economy. The study estimates that the gross domestic product was $34 billion higher last year because of outsourcing and that this created over 90,000 net new jobs. These figures will continue to rise in future years. By 2008, GDP will be $124 billion higher and the number of new jobs created by outsourcing will rise to 317,000.
It's important to recognize that these new jobs are almost entirely outside IT. According to Global Insight, the largest beneficiary is construction, which will gain 75,757 net new jobs due to outsourcing. Other industrial gainers are transportation and utilities (63,513), education and health services (47,260), and wholesale trade (43,359).
Additional benefits of outsourcing are lower inflation, lower interest rates, and higher real wages, which flow to all Americans. Global Insight gets these results because it looks at the ripple effects of outsourcing throughout the entire U.S. economy and not just on IT, as other studies often do.
Yes, bad news for people in my field. But good for Americans in general, not to mention the global economy.
Americans with long memories might remember that in the late '50s and early '60s, another economic trend had Americans worried -- automation. When he was campaigning for president, Jack Kennedy warned that automation could mean higher unemployment and deeper poverty.
In the late '60s and '70s another emerging innovation threatened the American way of life -- computers. In the '80s yet another dark force appeared on the horizon-- Japan's economic might. And of course in the '90s Ross Perot was warning us that freer trade would spell economic disaster for America.
That was then, but what about now?
A little known entity called the Organization for International Investment tracks the number of jobs in America that are created here by foreign companies. In 2001, according to Walter Wriston, nearly six and a half million jobs were created here by companies like Honda, BMW and Novartis. Not only does America benefit from outsourcing, we get more jobs from it than any other country. In some states, more than one in 20 jobs is ``outsourced'' from foreign firms. Foreign firms now create more new jobs in America than American firms create. If nobody outsourced, all those jobs would be gone.
Hear that? It's the sound of another Democrat lie going poof!.
How does today's unemployment rate compare to the long-term average? A Fox News/Opinion Dynamics poll of registered voters show that people believe that it is:
Higher Lower Same
43% 22% 20%
Fact: Historic unemployment rate is over 6%. Fact: Current unemployment rate is 5.7%
David Brooks, writing in the New York Times, says:
If you were obsessed with the political campaign over the past year, you would have gotten the impression that there's no such thing as a service sector of the economy it's all manufacturing and that the U.S. is getting trounced by China and India in the competition for global business.
That's a distorted view of reality. Since 1995, the U.S. has enjoyed a productivity renaissance. The McKinsey Global Institute breaks the economy down into 60 sectors. U.S. workers are the most productive on earth in at least 50 of them. Productivity gains cause standard of living increases. Productivity gains lead to employment gains. If history is any judge, yesterday's excellent job numbers could mark the beginning of another surge in job creation.
Indeed, if the numbers hold steady, it is entirely possible that instead of losing two million jobs during Bush's term in office, the market will gain two million jobs. That'll blow Kerry's advertising campaign right out of the water. If, that is, Kerry can manage to keep his campaign on track.
Emphasis added because I just can't help myself when I read this:
A U.S. manufacturing index unexpectedly rose last month as production increased and more factories added workers than at any time since Ronald Reagan was president.
"Plain and simple, this report tells us that the manufacturing sector is smoking,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. "The breadth of the expansion as well as its speed is breathtaking.'
Also this:
Tax cuts Bush won last year have helped spur the economy to its fastest growth in 20 years and at least six straight months of job gains.
European Union leaders admitted yesterday that their grand plan to unseat the US as the world's leading economic power by 2010 had lost its credibility.
It seems that because a "blizzard of regulations" actually stifles the economy rather than stimulating it, the member states are pretty much giving up hope.
The U.S. economy expanded at a 4.1-percent annual rate in the final three months of 2003 and corporate profits surged, suggesting growth and hiring may accelerate this year.
The increase in gross domestic product followed a gain of 8.2 percent in the third quarter, resulting in the fastest six-month growth in almost 20 years, the Commerce Department reported in Washington. Profits rose for a third consecutive quarter in the October-December period and were up 31 percent from the same quarter in 2002, the department said.
The GDP figure for the quarter, unchanged from the government's preliminary estimate, included revisions showing that consumer spending grew more than previously projected while inventories were smaller. Factories will have to turn out more goods and add workers at a faster pace to meet demand and replenish stockpiles, an economist said.
Americans' spending last month increased for a fifth straight month after a 0.5 percent gain in January that was larger than first estimated, the Commerce Department reported in Washington. Incomes climbed 0.4 percent, the most since November, and the University of Michigan said its March sentiment index rose from a preliminary reading two weeks ago.
The reason for increased spending? Why, increased income of course:
Americans' incomes, meanwhile, rose by a solid 0.4 percent in February, following a 0.3 percent increase the month before. Income growth an important factor in peoples' ability to spend in the months ahead was slightly better in February than the 0.3 percent increase that economists had been predicting.
With rising home prices, family net worth has surpassed the record reached in early 2000. The same holds for the market value of all U.S. mutual funds. This is an impressive set of prosperity achievements. Meanwhile, the American economy is flourishing, even while anti-war old Europe is stuck in recession. Spurred by a strong dose of supply-side tax cuts and easy interest rates, consumer spending, business investment, housing, and exports are all rising rapidly.
And despite what the media says, more Americans are working than ever before, according to the Labor Department's household survey. The unemployment rate has fallen from 6.3 percent to 5.6 percent as small business start-ups, the self-employed, and independent contractors are responding to lower taxes.
Pessimism and carping are for naysayers, as Sen. John Kerry reminds us each day. Kerry lacks the fortitude, patience, and vision to wage an effective war against al Qaeda and the other terrorist networks. He would place our national security in the hands of the UN or worse, he would allow leaders in old Europe call America's security tune.
On the economy, Kerry's the true Herbert Hoover candidate. His pledges to raise taxes and tariffs are the exact Hooveresque mistakes that turned a mild recession into a deep depression in the 1930s.
Tax cuts championed by President George W. Bush and made retroactive to January 2003 have boosted the average refund by 4.4 percent this year. Compared with February of last year, sales at retailers including Best Buy Co., Circuit City Stores Inc. and Gap Inc. rose the most since April 2000, according to the International Council of Shopping Centers.
``These refunds are a significant factor underlying expectations that the U.S. economy will remain strong during the first half of the year,'' Edward McKelvey, senior U.S. economist at Goldman, Sachs & Co., said in a report to clients.
Higher refunds and lower tax payments will put about $55 billion more in consumers' pockets this year compared with last, according to research by economists at UBS Securities LLC in Stamford, Connecticut. Economists at Credit Suisse First Boston forecast a $70 billion boost to household incomes.
Companies also have increased spending. John Mahoney, chief financial officer at Staples Inc., said last week that its business customers are optimistic enough about the economy to buy more computers and furniture.
``We think that's a sign that they're going to be willing to invest in adding headcount to their small businesses, and that's a good sign for the economy overall,'' Mahoney said in an interview from Framingham, Massachusetts.
had the unfortunate luck of being president at the time of a devastating attack on American soil shook the financial and airline industries
launched a global war on terrorism and the liberation of two countries
was in office when corporate scandals rocked corporate America
Simply put, this series of events should have sent the American economy reeling.
Economist J. Edward Carter is the chairman of Economists for Bush who puts together a pretty solid argument that in spite of everything, Bush's economic record is in many ways superior to Clinton's first three years:
Non-farm real compensation per hour (12 quarter change annualized)
-0.3%
+0.8%
Real gross domestic product (3 year total)
$23.4 trillion
$30.3 trillion
Real exports (3 year total)
$2.13 trillion
$3.09 trillion
Real gross domestic product growth (3 year average Q4 to Q4)
+2.88%
+2.34%
Other items that Mr. Carter points out:
The unemployment rate peaked in June 2003 at 6.3 percent, compared with peaks of 7.8 percent and 10.8 percent during the previous two recessions.
For the third consecutive year, the U.S. economy is poised to grow faster than most other industrialized economies. France, Germany, and Japan, for instance, are not expected to grow even half as fast as the United States.
Since the Bush administration began, non-farm productivity has increased at a 4.1 percent annual rate the fastest pace for the start of any presidency since Harry S. Truman occupied the White House.
More single-family homes were sold in 2003 than in any other year on record. And the homeownership rate is at a record-high of 68.5 percent a full percentage point higher than during the fourth quarter of 2000.
At 5.6 percent, the national unemployment rate is now lower than the average unemployment rate of the 1970s, 1980s, and the 1990s.
According to the Labor Department's household survey the survey used to calculate the monthly unemployment rate more Americans are working now than ever before. The payroll survey is also showing improvement: 112,000 new jobs were created in January and 366,000 jobs have been added over the last five months.
America's economy, bolstered by brisk business spending, grew at a healthy 4.1 per cent annual rate in the final quarter of 2003. That was even faster than first thought and offered new evidence that the economic recovery in the US was firmly rooted going into the new year.
The economy's performance in the second half of last year marked the best back-to-back quarterly performance since the first two quarters of 1984
All this talk about a "jobless recovery" could be smoke and mirrors. U.S. employment figures calculated by the Labor Department do not include self-employed individuals:
While outsourcing is not new, a rise in self-employed contractors could explain the slow rebound in employment as counted by the payrolls survey, which shows 2.3 million jobs have been lost since Bush took office in January 2001.
For the same period, a smaller study of households, based on the Current Population Survey, shows a 700,000 rise in employment -- a seemingly contradictory sign that has fueled Republican skepticism about the accuracy of the bleaker payrolls data.
According to the Current Population Survey, the number of self-employed Americans surged 3.9 percent in the last three years, far outstripping a 0.6 percent rise in overall employment.
There's more:
As president of SurePayroll, the fifth-largest U.S. payroll services provider, Michael Alter has seen a definite shift away from the traditional employer-employee relationships captured by the payroll survey.
Last year, payments by his small business clients to independent contractors surged 12 percent -- and Alter himself says he is using more contract workers.
"I personally believe there has been a structural change," he said. "You can get people who have very specialized skills for a very reasonable price, and you don't have to put them on staff full-time."
Barry and, it seems, Chris are disapproving of my attitude towards the president's plan for increasing funding for the NEA. Fair enough -- not everyone thinks that the founder's intentions should be the basis for our government today.
Pronounce the acronym "NEA," and most people think Robert Mapplethorpe, photographs of crucifixes floating in urine, and performance artists prancing about naked, smeared with chocolate, and skirling about the evils of patriarchy.
But Barry was careful to inform me that the NEA is about much, much more.
The Kimball article confirms this, as he writes about the new chairman for the Endowment:
Within a matter of months, Mr. Gioia has transformed that moribund institution into a vibrant force for the preservation and transmission of artistic culture. He has cut out the cutting edge and put back the art. Instead of supporting repellent "transgressive" freaks, he has instituted an important new program to bring Shakespeare to communities across America. And by Shakespeare I mean Shakespeare, not some PoMo rendition that portrays Hamlet in drag or sets A Midsummer Night's Dream in a concentration camp. (Check the website www.shakespeareinamericancommunities.org for more information.)
Mr. Gioia is moving on other fronts as well. He has hired a number of able deputies who care about art and understand that what the public wants is more access to good art opera, poetry, theater, literature not greater exposure to social pathology dressed up as art. After a couple of decades of cultural schizophrenia, the NEA has become a clear-sighted, robust institution intent on bringing important art to the American people.
I still contend that it is not the government's job to bring culture to the masses. At most it is to create a safe environment in which the arts can thrive. Kimball opines that as long as the government is going to do it, it's about time that it is doing it right, and there is some merit to that.
But Kimball's most important point is this:
It's quite odd, really. People keep telling us that is, professors and CNN commentators and Hollywood actors keep telling us how very stupid President Bush is. Yet everywhere one looks he is supporting some of the most intelligent and dynamic people ever to occupy their cultural posts. Dana Gioia at the NEA, his counterpart Bruce Cole at the National Endowment for the Humanities, Leon Kass and his panel of distinguished scientists and philosophers at the President's Council on Bioethics (see their website www.bioethics.gov to get a sense of the good work they are doing on clarifying the enormous moral issues surrounding the debate over biotechnology). The Left keeps screaming about how dim George Bush is, but in the meantime, he has illuminated one area of public life after another with immensely talented and articulate people.
President Bush will seek a big increase in the budget of the National Endowment for the Arts, the largest single source of support for the arts in the United States, administration officials said on Wednesday.
The proposal is part of a turnaround for the agency, which was once fighting for its life, attacked by some Republicans as a threat to the nation's moral standards.
Yeah, I'm one of those Republicans.
Of course, we are talking about the most insignificant amounts of money -- an increase somewhere between $15 million and $20 million. Still, I'm not getting any benefit from the $121 million they spent on "art" this year.
Some new money sought by Mr. Bush would expand initiatives with broad bipartisan support, like performances of Shakespeare's plays and "Jazz Masters" concert tours.
Mrs. Bush also plans to introduce a new initiative, "American Masterpieces: Three Centuries of Artistic Genius." This would combine art presentations from painting and literature to music and dance with education programs. The program would give large numbers of students around the country a chance to see exhibitions and performances.
Again, nothing here to really make me happy. If you want to hear jazz, turn on a radio. I hate jazz. It is my second-least favorite kind of music. If you want to see Shakespeare, go to your local theater group. You'd be surprised what you can see in the park on a summer day. And given the horrid state of affairs in our public schools, who wants the federal government to expand educational initiatives?
Representative Louise M. Slaughter, a New York Democrat who is co-chairwoman of the Congressional Arts Caucus, said she was delighted to learn of Mr. Bush's proposal.
"There's nothing in the world that helps economic development more than arts programs," Ms. Slaughter said. "It was foolish for Congress to choke them and starve them. We should cherish the people who can tell us who we are, where we came from and where we hope to go."
And that is why Democrats can't be trusted with money!
Forbes analyzes the chances that this will be an economic "boom year":
But is the U.S. economy really booming right now? Economists at The Conference Board certainly think so. Revising its year-end economic forecast sharply upward, the Board last week projected that real gross domestic product growth will hit 5.7% in 2004, making it the best year economically in the last 20 years. And a recent report on the manufacturing sector from the Institute for Supply Management reveals that the flood of liquidity has suddenly pushed the ISM Purchasing Managers Index to its highest reading in 20 years, while its New Orders Index has surged to its strongest level since 1950.
That means low tax rates will remain low; trade liberalization will expand in the Western Hemisphere, and perhaps worldwide; and more incentives for tax-free saving and investing -- including personal-savings-account choices for Social Security enrollees -- will spring from a Bush second term. In addition, healthcare plans will continue to lean toward private-sector competition, rather than a government-sponsored takeover, and education testing and choice will remain on the path of reform.
The dirty little secret is that the Bush tax cuts are working.
Rumor has it that President Bush will drive for the creation of two tax-free savings accounts, beginning with a mention in next Tuesday's State of the Union address:
The first, a lifetime savings account, would allow individuals of any age and any income to contribute up to $7,500 a year. Interest and investment income would accumulate tax-free and withdrawals could be made at any time, for any purpose, without a tax penalty. Permitting tax-free withdrawals distinguishes this account from the current, more specialized, medical or education savings accounts by offering savers immediate, penalty-free liquidity.
The second, a retirement savings account, would be similar to a Roth IRA but much more powerful. Like current IRAs, withdrawals would not be permitted until a certain age is reached. Interest and investment income would grow tax-free and withdrawals would also be tax-exempt. But the new account would more than double the contribution to $7,500 a year, per individual, and has no income caps for eligibility. (Currently, to be eligible for a Roth IRA, joint income cannot exceed $160,000.)
Corporate profits "soared" to record levels in 2003.
Profitable businesses means more investment in everything from new industries to rebuilding neglected infrastructure. This will translate to more jobs and higher wages.
Look for the Dem Spin to begin soon -- no one but big business getting ahead under the Republicans, jobless recovery (which is no longer true), weak dollar (which is a valid concern). Let the games begin!
U.S. manufacturing accelerated in December, growing for the sixth straight month to its highest level since December 1983. Furthermore:
The rate of new orders, an indicator of future production, climbed to a level that hasn't been seen since Harry Truman was president more than 50 years ago.
Perhaps equally telling, the December survey found prospects for manufacturing employment modestly improving for a second month, after 37 consecutive months in which industrial employers reported shrinking payrolls.
The December employment reading is the highest in four years.
The nation's manufacturers hit trouble long before the broader U.S. economy slid into recession in March 2001, and the sector has remained shaky well after most other segments returned to health.
Manufacturing "is really the last piece of the puzzle that is falling in place to produce broad-based, sustained economic growth," said Sung Won Sohn, chief economist with Minneapolis-based Wells Fargo & Co.
A single Holstein in Washington tested "presumptively positive" for bovine spongiform encephalopathy, i.e. mad cow disease. The test has not been confirmed, nor is there any indication that this is anything but an isolated incident.
Japan reacted by banning imports of all U.S. beef, closing the largest overseas market to American beef exporters. Korea effectively did the same by halting customs inspections of all U.S. beef.
American shoppers are spending more freely this year than last, while European shoppers are still being cautious:
Those perspectives show a divergence between the United States and Europe. The U.S. economy expanded at an 8.2 percent annual rate last quarter, the fastest since 1983, driven in part by consumer spending. The jobless rate fell to 5.9 percent in November. Analysts like Edward McKelvey, senior U.S. economist at Goldman Sachs, have raised their forecasts for the country's economic growth next year.
The euro zone's recovery from a second-quarter contraction has been dependent on exports. With the euro's 18 percent rise against the dollar this year, consumer spending will also have to rise for the rebound to be lasting. Yet joblessness, at 8.8 percent, is near its highest level since November 1999, and consumer-confidence readings in the 15-nation European Union have been negative all year. [SNIP]
Some Europeans, like Ira Mahac of Munich, are even traveling to the United States to do their holiday shopping. "The deals are better," the 28-year-old doctor said while looking at Hugo Boss men's shirts in Bloomingdale's in New York.
Manufacturing in the U.S. mid-Atlantic region surged powerfully and unexpectedly in December as new orders jumped to a 23-year high, in one of the clearest signs yet that factories have emerged from a two-year slump.[SNIP]
New orders, a harbinger of future growth, surged 21 points to 41.8 in December from 20.8 in November, while employment, which has so far lagged the recovery in production, showed its first solid rise, soaring to 21.9 from 3.3 last month.
The report is one of the first readings on U.S. manufacturing each month and is closely watched for hints on the overall health of factories, which account for about one-sixth of economic activity.
To recap, Clark said, "I keep hearing about recovery. You don't see the signs of recovery."
The NBER's Business Cycle Dating Committee has already ruled the downturn began in March 2001 and ended in November 2001. But changes to economic data by the Commerce Department now show the economy first contracted in the third quarter of 2000, rather than the first quarter of 2001.
That's the third quarter -- back when all the Dems were sooo confident that the Gorebot would walk to easy victory. Now even the most biased Bush-hating liberal will have to admit that the recession wasn't Bush's fault. As if any president can be responsible for the economy in the first year of his presidency.
The Steely Truth or Everything You Always Wanted to Know about Steel Tariffs, but were Afraid to Ask
A lot of people decried the president's actions when he placed import tariffs on steel in 2001. So why did he do it?
The Steel World Implodes
In the late 1990's, a financial crisis in Asia led to a sharp reduction in steel demand (Asia accounted for 95% of steel produced there). This coincided with declining economies in Russia and Brasil, both steel-producing nations with nowhere to sell product:
World growth was slowing. Europe had already closed its market to the Commonwealth of Independent States through government restriction and to Japan by private arrangement. Latin Americas growth had slowed as well.
Most countries in the rest of the world, developed and developing, market and nonmarket, had over-invested in steel, often with grotesquely large subsidies over $100 billion in the last two decades. All would seek to be net exporters. Global overcapacity was enough to supply the entire U.S. market two and one-half times over.
Predictably, foreign countries began to literally dump excess steel at government-subsidized prices on the huge American market:
As expected, the Japanese producer cartel shifted almost the entire shortfall from its usual sales to the rest of Asia to the U.S. market. Its shipments of hot-rolled steel, the largest commodity category of flat-rolled steel products, jumped from 218,000 net tons in 1996, the year before the Asian financial crisis, to 2.6 million net tons in 1998. Russia, unable to find demand at home or elsewhere abroad, increased its shipments to the American market from 811,000 to 3.8 million tons. Brazil, increased its exports to the United States from 254,000 to 451,000 tons. The vast increases occurred during the same short period.
On 7 July 1999, Brasil agreed to restrict steel imports into the US and in return we agreed not to impose duties. Later the same day, the USITC voted 5-1 to impose antidumping duties on imports of steel sheet and strip from France, Germany, Italy, Japan, South Korea, Mexico, Taiwan and the United Kingdom.
Democrats Muck It Up
Enter the Byrd Amendment (named after the biggest porker in Washington, Robert Byrd (D) of West Virginia), signed into law in October 2000 by lame-duck President Clinton. It was snuck in under the radar as part of an agriculture appropriations bill and passed without public debate. This bit of thievery legislation takes all the money collected through anti-dumping and anti-subsidy duties and distributes them to the US companies that file the complaints that lead to the duties. In effect, this results in a huge government subsidy to corporate America (but only Republicans support corporate welfare, right?).
Senator Byrd said that the action would amount to $38 million over ten years. The first distribution in January 2001 was nearly $207 million -- mostly to steel producers. By the following year the number reached $270 million.
World Reaction Reaction from the global community was swift as nine members of the World Trade Organization (WTO) filed a complaint -- the largest coalition of aggrieved parties in the history of the WTO (and later joined by Canada and Mexico):
The EU and other complainants -- Australia, Brazil, Chile, India, Indonesia, Japan, Korea and Thailand -- claim that the law punishes exporters to the US twice because first they are fined and then those fines are handed back to their competitors. Japan also underscored that the law works as an incentive to domestic producers to file complaints.
The Zeitgeist
So the global situation when the tariffs were imposed consisted of a declining markets and massively excess production capacity, resulting in cheap imports dumping on the US market, resulting in duties imposed that raised the price of those imports, and subsidies for American steel as a result of the Byrd Amendment.
Now consider the state of American steel, which also had excess capacity, too many companies, inefficient organization and procedures, and were in financial straits due to a $2 billion pension problem. From 1997 until the time of the tariff enactment, 31 American steel companies had gone into bankruptcy -- 17 of them having shut down completely.
The President Takes Action
President Bush asked the USITC for a recommendation, and in December 2001 it reconfirmed that foreign steel producers were dumping product on the American market and recommend tarrifs between 20 and 40%. In spite of the union vote going overwhelmingly to Gore, President Bush kept a campaign promise and enacted steel tariffs of 8 to 30% in March of 2002 under the Escape Clause (Section 201, Article XIX or the Trade Act of 1974). Still, no one was happy. Free trade proponents were outraged, as were industry insiders:
The domestic industry had demanded tariffs of 40 percent on all foreign steel. Bush exempted NAFTA members and about 80 developing countries. Steel makers also wanted the federal government to pay for billions of dollars in health care bills for 600,000 steel retirees, which did not happen.
The Industry Retools
This gave the industry the opportunity it needed to invest $3 billion in streamlining and reorganizing.
Bankrupt Bethlehem Steel (Pennsylvania) was acquired by the International Steel Group (ISG) out of Cleveland, Ohio. Similarly, US Steel Corp (Pennsylvania) purchased National Steel (Indiana). Weirton Steel (West Virginia) is currently in merger talks with ISG. These consolidations give the industry the necessary economies of scale to compete with the giantsofEuropeandAsia.
In addition, reorganizations have made American steel more efficient. The industrys largest union, the United Steel Workers of America, agreed to more flexible work practices, profit-sharing and even some redundancies in order to give its remaining members a fighting chance of saving their jobs. For example, one ISG mill eliminated 200 managers, reducing the management layers from seven to three. And on the shop floor the number of job descriptions were reduced from 165 to a mere five -- meaning that some employees are now doing the work that used to be performed by two or even three workers.
Finally, prices have risen and imports dropped. Billions of dollars in pension and healthcare obligations have been shifted (to the Pension Benefit Guarantee Corp., a government agency) or eliminated.
Pay the Piper
There was a cost associated with protecting the steel industry. Some 200,000 jobs were lost in manufacturing industries that use steel -- more than all the jobs in the entire American steel industry -- representing $4 billion in last wages. The remaining 13 million workers in steel-related industries were solidly against the tariffs.
Consumers were hit, too. Higher raw materials price meant that the American public paid higher prices for everything from toasters to automobiles. Product choices declined as well. The hardest hit by higher steel prices were small to medium-sized businesses, some of which were forced to close their doors. Other companies shifted manufacturing off-shore where they had access to lower cost steel (and lower cost workers) in order to compete.
Most importantly, I think, is that many of the steel-related industries in America lost customers to overseas competition who were able to undercut American manufacturer's prices by margins greater than the tariffs imposed.
WTO Raps Uncle Sam's Knuckles
Enter the international community, still outraged over the tariffs. In early November 2003 the WTO's highest court ruled that the US tariffs were illegal, clearing the way for other countries to impose sanctions of their own on US imports. The EU threatened $2.2 billion in sanctions, with up to $4 billion the following year. The sanctions were clearly aimed directly at the president, as the laundry list of products was carefully chosen to affect the 2004 presidential election. It included Florida oranges, textiles from the Carolinas, Wisconsin-built Harley-Davidson motorcycles, agricultural equipment from Iowa, even Californian farm products (although California can hardly be considered a "swing state").
So Bush was wedged firmly between a rock and a hard place. On the one hand, he could bow to pressure from the EU and lift the tariffs. On the other hand, he could appease voters in steel-producing states like Ohio (Bush by 3%), Pennsylvania (Gore by 4%), and West Virginia (Bush by 5%). The former makes him look like a wussy. But the latter includes billions of dollars in retaliatory sanctions in states throughout the nation.
Bush Blinks
So Bush did what he did in the first place -- he followed the USITC's advice. The ITC said that the tariffs had a "slightly negative" impact on the economy, to the tune of $30.4 million annually in lost economic growth.
This allowed the president to declare victory and go home. In essence he said that the industry had consolidated, retooled and retrenched -- all true. What was not mentioned is that the industry moves probably would have happened anyway. Also not mentioned were the unintended consequences of the tariffs in terms of steel-related jobs and higher consumer prices.
Bottom Line: Politics
Truth is, the tariffs may have saved a few steel worker jobs -- but they were few indeed. It was the union's willingness to negotiate that saved the jobs. It was the series of bankruptcies and mergers that saved the industry. These were painful to go through but that is the price of a free market.
The tariffs did more harm than good in other parts of the economy -- a lot more harm. This was a feel-good policy that was politically motivated, not one that was grounded in economic theory.
Clearly, all measures possible should be taken to stop foriegn governments from dumping products and harming American businesses, especially (some would argue) those that are essential to maintaining our national infrastructure. However, no business exists in isolation. Tariffs should be the absolute last resort after all other avenues are explored, such as negotiations at the WTO level.
In addition to the need to fulfill a campaign promise, some say that Bush initiated the tariffs in order to influence mid-term elections in the steel-producing swing-states of Ohio, Michigan, Pennsylvania and West Virginia. If so, it was a miserable failure. The net result was a one-seat pickup in the House for Michigan.
The steel unions, of course, are now saying that this issue will cause them to vote against the president next year. Leo Gerard, head of the United Steelworkers of America, said, "Caving in to the blackmail of the European economic community is not going to float well in Ohio, Pennsylvania, West Virginia, Illinois and the other industrial states. The last time I saw, there were no votes for the president in Europe."
Who among us cannot recognize standard union rhetoric? Union endorsements always go to Democrats, and this election cycle is no exception. Months before President Bush announced he was rescinding the tariffs, United Steel Workers joined the Teamsters by announcing their endorsement of Dick Gephardt.
Steel consumers hail from the so-called rust belt of Michigan and Illinois states with concentrated auto industries as well as Wisconsin and Minnesota, home to smaller manufacturers hit by higher steel prices. Collectively, they have lost nearly $680 million in capital and labor returns since the tariffs were put into place, according to International Trade Commission numbers.
These four states share a total of 47 electoral votes in the 2004 election and have hosted Bush no less than 36 times since his inauguration. In 2000, Bush lost all four states to Al Gore by varying measures Michigan by 5 percent, Illinois by 12 percent, Minnesota by 2 percent and Wisconsin by only about 5,700 votes.
Epilogue
And the corporate welfare Byrd Amendment? The WTO, and in January 2003 a WTO appeals panel, agreed that the Byrd Amendment violated international trade agreements, and subsequently told the US that it had until 27 December 2003 to repeal the amendment, an action President Bush is urging Congress to take as part of his 2004 appropriations bill. This will be tough because two-thirds of the Senate are in favor of keeping the law and have urged the president to negotiate with the WTO to avoid sanctions.
During the next 12 months, 42 percent of companies plan to increase the number of employees. In addition, downsizing might have peaked, as only 17 percent of respondents plan a decrease in the overall number of employees.
In advance of a series of official reports next week, Bloomberg projects:
150,000 jobs created in November
Unemployment rate is forecast to hold at 6 percent, matching the six-month low set in October.
Manufacturing rose this month to the highest in four years as factories boost orders and production to replenish depleted stockpiles.
The eighth straight monthly expansion for service companies.
Institute for Supply Management's factory index may rise to 58.1, the highest since November 1999, according to the median forecast. The index has been greater than 50, suggesting expansion, since July.
Orders placed with the nation's factories probably rose 2.2 percent in October, the biggest increase since July 2002.
And finally (emphasis added):
``Every cylinder of the economic engine is kicking,'' said Gene Huang, chief economist at FedEx Corp., the world's largest overnight-delivery company, in a televised interview with Bloomberg News on Friday. ``Even the restocking process seems to be kicking in right before the holiday season. 2004 is going to be a good year.'' Huang was named Business Week magazine's most accurate economic forecaster for 2002.
Government feeds problems and starves solutions. It obsesses about people's miseries and failures and inadequacies, individual and collective, and throws infinite money at them. It purchases unhappiness, you might say, by taxing happiness. It redistributes the world's resources from happy stuff to miserable stuff.
With all the attention on the unemployment rate, one might easily miss growing concerns about projected labor shortages:
Consider: 76 million baby boomers will be retiring this decade and next, but only 45 million Generation Xers are in the pipeline to take their places, according to the Conference Board, a New York-based economic research group.
Dell Computer was one of the first corporations to move tech-support jobs to India. Now the company is bowing to pressure from unhappy customers and bringing some of those jobs back home:
English-speaking Indian workers are highly educated but earn a fraction of American salaries. Some customers have complained they can't understand Indian workers because of their accents and that tech-support workers rely too heavily on scripted answers.
The American workers will be reserved for corporate customers.
It looks like the long fight over reforming overtime pay is over. RINO Arlen Spector has agreed to drop his objections and let the $280 billion dollar spending bill go forward (why this bit of legislation is bundled with appropriations is beyond me, but who really understands these things?).
Liberals have been fighting this for a long time, as I posted way back on 3 June 2003 in AFL-CIO, UAW and NOW have panties in a wad. Everything I blogged back then still applies so if you want to see what all the fuss is about, I think the post is a pretty good primer (if I do say so myself).
This is why even Libertarians like Say Uncle -- who say they are so disappointed in Bush's policies that they will absolutely, positively not vote for him even though they are already benefiting from his leadership -- should stay with Bush.
In a speech before the Tax Foundation, a policy group here that advocates lower taxes, Treasury Secretary John W. Snow said his staff was preparing "a number of proposals to simplify the tax code" and resurrected the idea of "lifetime savings accounts" that would allow people to put aside large sums of money and pay no tax on the investment income they receive.
The proposed "lifetime savings accounts" would allow $7,500 per individual (that's $15,000 for a married couple) to be put into an account for which there would be no taxes on dividends or stock profits. And it there would be a large degree of freedom for withdrawing money before retirement age without imposing penalties.
Look for this to be a centerpiece of the re-election message. Also look at it as the first step to Social Security privatization and significant tax code simplification.
The refunds will fatten bank accounts and, if spent, boost the economy because consumer spending accounts for 70% of U.S. economic activity. That will help ensure that the economic gains underway do not fizzle out, and it will ultimately benefit the 9 million Americans who are out of work.
What do you know -- the article assigns partial blame for the reviving economy to the Bush tax cuts.
That spending will be on top of a spree consumers went on earlier this year. Not only did workers see their withholding taxes cut midyear, but $14 billion in child-tax-credit checks hit mailboxes right before the back-to-school shopping season. Both Merrill Lynch and Goldman Sachs figure consumers spent about three-quarters of that money, far more than anyone expected and much more than after the 2001 tax cuts.
The spending gain led to the biggest jump in economic activity in 19 years in the July-September quarter. The tax cut "clearly provided the boost the economy needed to get back on track," Treasury Secretary John Snow said in a speech Thursday
People were spending because they feel confident about their future with a strong hand on the tiller. The man that returned honesty, decency and integrity to the White House has restored confidence to the economy.
Democrats continue to whine about manufacturing jobs that are fleeing the country as companies seek cheaper labor in countries like China. But if that is true, then why is the number of manufacturing jobs in China down as well?
Contrary to the impression that you get from politicians running for president and the news media, manufacturing job losses are a global phenomenon. The New York based investment management firm Alliance Capital Management performed a study of 20 large economies from 1995 to 2002 and found that even though global industrial output rose more than 30%, more than 22 million jobs were lost globally.
While it is true that some countries have seen a net increase in factory jobs during the time period, the global average was a loss of 11%. Most surprising was that China had an even greater loss than the US.
Robert Reich, Secretary of Labor under former President Bill Clinton, explains it this way:
All over the world, factories are becoming more efficient. They've installed new equipment and utilized new technology. And that often means fewer jobs. Market reforms have also played a role. In China, new modern factories are replacing large, inefficient state-run plants. The result is that even as China produces more goods than ever before, millions of factory workers have been laid off.
Manufacturing is following the same path as agriculture. As productivity rises, employment falls because fewer people are needed. In 1910, almost a third of adult Americans worked on farms. Now, fewer than 3 percent do. But American agriculture is the most productive in the world.
U.S. service industries expanded at a faster rate last month and September factory orders rose for a fourth time in five months amid signs that the economic expansion is adding jobs at a faster pace.
The indispensable Hobbs has more on the real story behind the "job loss" numbers that the Democrats are claiming. But read comments 19 and 20 attached to the post - someone disputes Bill's numbers.
Coming after last week's news that business investment in the July-to-September quarter had its biggest gain since the first quarter of 2000, at the peak of the late-1990s boom, economists said it appeared one of the key pieces of a sustained expansion was now falling into place.
A big splurge in business spending during the boom had left many firms saddled with too much production capacity. The resulting sharp cuts in spending were the primary reason the economy fell into recession in early 2001 and has struggled to return to full growth.
All nine of the candidates are proposing to raise taxes, the only difference being how much and on whom. Among the non-crank candidates, Dick Gephardt and Howard Dean are the bravest, or the most suicidal, depending on your politics. They're proposing to repeal every dime of the Bush tax cuts, regardless of income.
Praise the 1993 Clinton tax hike:
In this theory, the tax increase caused revenues to cascade into the Treasury, which in turn caused interest rates to fall, and the boom was on. All of this is a repudiation of the old Democratic argument, rooted in Lord Keynes, that tax cuts were advisable in difficult times. Nowadays most Democrats believe in tax increases as fiscal stimulus.
Of course, this theory also overlooks a little economic history. Long-term interest rates actually rose through most of 1994, peaking on the day Republicans took Congress promising to cut spending and taxes. The much bigger bang came from the Gingrich revolution. Only with it did rates fall, the budget move toward balance, the stock market soar and the boom begin. (See the chart nearby.)
Protectionism:
With the exception of Messrs. Lieberman and Clark, all of the candidates now accept the AFL-CIO-Sierra Club diktat that any new trade deals must impose U.S. labor and environmental standards on the rest of the world. Since few important countries are likely to accept these terms, this is a recipe for ending all future trade deals.
Entitlements with no end in sight:
All of the candidates oppose Mr. Bush's prescription drug plan for Medicare, but only because they say it isn't generous enough. Messrs. Gephardt and Kerry are pounding Dr. Dean daily for having dared even to consider reforming Medicare during the 1990s. Mr. Dean has responded by denying he'd ever do such a horrible thing. If any of these candidates win, Social Security and Medicare will be on autopilot for four more years closer to the day the Baby Boomers retire. These are of course the same candidates who say the Bush tax cuts are "fiscally irresponsible."
America's economy expanded by a remarkable 7.2% in the third quarter at an annual rate, the fastest since 1984. The bumper growth rate was fuelled by a spending spree as Americans took advantage of tax cuts and cheap credit, and by a pick-up in business investment.
Corporate earnings are set to have their best quarter since the spring of 2000, with initial estimates of a 21 percent jump over last year's third quarter. Strong consumer spending, a weakening dollar and further cost- cutting all helped to improve the bottom line for companies that have already reported for the quarter, which ended Sept. 30.
Golly, Grandpa, what in tarnation kin be a-causin' this?
The strong corporate profits are being reported as the economy appears to have had its strongest quarter of growth in almost three years, spurred in part by the tax cuts earlier this year.
For once, the Red Rag successfully connects the dots.
The largest challenge to American Democracy in our lifetimes, I think, is coming in the next Presidential election. The challenge is whether and how "American Interests" will be defined by the two sides, and whether the discussion will remain at least partly within bounds of rational debate.
In other economic news, machine tool demand was up 16.6% in August. Can jobs to operate those tools be far behind?
The S&P rose to its highest level since June 2002 in anticipation of better-than-expected earnings reports for the third quarter.
Goldman Sachs raised its estimate for third quarter GDP to 6.5%, which would be the fastest pace in almost four years (for the mathematically-challenged, that would be pre-Bush).
Oh wait a minute - that's the Democrats talking. Turns out, things aren't that bleak after all. In addition to yesterday's post about wholesale inventories falling, add the following headlines from today:
Wholesalers' inventories fell unexpectedly in August while sales of goods posted a solid rise, the government said Wednesday, in a sign companies may need to build up depleted supplies to keep up with demand.
So to replenish inventory, you think companies will have to hire workers?
"It's not that surprising that inventories declined in August consumer spending and business investment were stronger in that month," said Mark Vitner, economist at Wachovia Securities.
Gee, I wonder where all that consumer spending came from? Trickle up economics? Are you doing your part for America? My wife is!
Economists were surprised again (that seems to be a recurring theme these days). They expected the unemployment rate to rise another tenth with the loss of about another 25,000 jobs. But instead 57,000 jobs were created last month.
Of course America needs a lower dollar: it has been living beyond its means for years. In the 1940s (and briefly in the 1980s) America ran a current-account surplus. Now its current-account deficit is 5% of GDP and rising. Such a deficit will need to be corrected at some stage with a weaker dollar, but over time and gradually. The risk is that it happens suddenly. Asian countries have spent many billions of dollars intervening to stop their currencies rising against the dollar. As a result, they now hold an astonishing $1.7 trillion of Treasuries. Overseas investors now hold 36% of all Treasuries; in 1985, at the time of the Plaza Accord, they held just 14% of a much lower total.
The new, politicised weak-dollar policy is scarcely likely to make them want to add to this, and may even encourage them to sell some of those that they already hold. A big sell-off would mean plunging Treasury prices and thus their yields would rebound and more from their recent falls, leaving America with higher financing costs, the last thing its fragile economy needs. As far as I or any of my friends can tell there is no one remotely close to the president that knows about international finance, says one of Buttonwoods old friends, far more senior than he. It shows.
Outside the Beltway points to today's must read post from Robert Prather as he rebuts Krugman's latest attempt at journalism in the New York Times:
I'm not a believer in supply-side economics. Krugman properly points out that it is more of a political term than economic; I would call it a marketing term and an econ professor I had a couple of years ago called it a "junk" term. Regardless of what you call it, it's not a school of thought in economics, as are the Chicago, Cambridge and Austrian Schools. In macroeconomics you will here Chicago referred to as monetarism and Cambridge as Keynesianism.
The basic philosophy behind supply side is that reduced tax rates will yield more revenue and is based on the Laffer curve. As Krugman points out, few economists -- apparently even Krugman -- would argue against the notion that high marginal tax rates are a disincentive to work. If the tax cuts are followed by a reduced fiscal burden, I agree that the economy would grow faster over the long run and some additional revenue would result. This isn't enough to support a school of economic thought, though it has worked well as a marketing device for tax cuts. Small beer.
Iconoclast has an excellent analysis of the horrid economic policies of the Clinton administration:
When he took the oath of office in January 1993, newly elected President Bill Clinton inherited a robust economic recovery that had been under way for almost two years, fortified by the strong momentum that had been building up in the US economy for more than a decade. When he left the White House eight years later in January 2001, Clinton bequeathed his successor -- and the American people -- an incipient recession and a severely wounded economy that has yet to recuperate from the long-term damage inflicted by his administration during its two terms in office.
What happened in between is a sorry tale of how Clinton's ill-conceived legislation, and abuse of the regulatory mechanism, ultimately left the economy bleeding and battered, despite Clinton's failure to get much of his agenda enacted and even after his reluctant embrace of constructive initiatives put forward by the political opposition.
The newly designed $20 bill will come out October 9th. Gone is the oval around Jackson, and so is the "greenback" designation - 'cause this one has "a background with subtle green, "peach" and light blue hues". How cute.
Other new features include small 20s in faded yellow in the background of the back of the bill. In the background of the front of the bill is a faded bald eagle and the words "Twenty USA/USA Twenty."
The Treasury plans to redesign bills every seven to 10 years to keep up with technological advances in counterfeiting.
Ultra-liberal NY Senator Schumer said that the Saudi's are to blame for the high price of gasoline:
"This is not the fault of your local gas station," Schumer (D-N.Y.) said, citing preliminary data from the Department of Energy showing that the Saudis cut oil exports to the United States by a half-million barrels - or 25 percent - in the first three weeks of August.
"This is particularly troubling because it comes at a time when other OPEC nations are producing less oil than we figured," he said. "Venezuela, Nigeria and Iraq, three mainstays of oil production in the world, are cutting back. The price has not gone up a little, but a huge 33 cents from last year."
He said the cause is not something "tiny" like recent pipeline problems in the Midwest. That would increase the price of gas by mere pennies, he said.
"If you had to pick one reason prices went up as much as they did, it's the Saudis," Schumer said.
The Tennessee Tax Revolt reports that Vermont (ol' Howard Dean's home state) ranks fifth in terms of per capita tax burden on its citizens and second when taxes are shown as a percent of personal income.
The same study shows that President Bush's home state of Texas ranks 49th and 48th in those categories, respectively.
Who do you want setting our tax policy?
Note: for interested Tennesseans, we rank 48th in per capita and 46th as a percent of personal income. Not bad for a state that had a revenue surplus this year even without an income tax.
Here's a free heads-up for national political analysts -- George Bush's re-election will likely turn on the state of the economy. And the national economy is in trouble only if you include California. Take California out of the equation, and the national economy is in pretty good shape. For example, in June, unemployment totals were down nationally -- if you excluded California. They were up if you included California. This month, nearly half of all job losses in the country were California jobs.
So Bush's re-election very likely will turn on what happens in the California economy -- and that very likely will depend on whether or not Arnold Schwarzenegger replaces Gray Davis in the Sacramento governor's office.
I'd love some confirmation of these numbers. Anybody got a link?
The Commerce Department Monday issued a rare correction to its published economic data, saying U.S. construction spending rose 0.3 percent in June instead of the previously reported flat reading.
"A processing error was discovered that affected the June 2003 new single-family home estimates. The estimates have been corrected. The error affects data for April, May and June because current month estimates affect estimates for prior months," Commerce said in a note atop the revised release.
Commerce said June construction outlays were about $8.17 billion higher than in the data published Friday, at a seasonally adjusted $872.48 billion annual rate. May outlointed by the original report, having projected a 0.3 percent gain. The revisions could boost second-quarter estimates of economic growth, which had already come in stronger than anticipated, at a 2.4 percent annual rate.
What, trickle-down works? Or is this the result of giving people money because they forgot to use a condom?
First, let me remind everyone that effecting significant changes in a ten trillion dollar economy is about as easy as teaching an elephant ballet. Turning around a failing economy takes time.
Second, Bubba points out that the economy is worse off now than when W took over, and quotes the NASDAQ and a selective DOW index for proof. I say look at the trends:
The bright blue line is approximately the end of January, which is when W took over (see my counter at top right of my main page). From these graphs it is immediately obvious that things started going south in the first quarter of 2000 (remember? That was when everyone assumed the BoreBot would waltz into the White House). W slowed the economic downturn, and then came the attack on America in September 2001. Even with that, and the subsequent uncertainty that came with the war on terror, the economy stabilized and the recovery has begun.
Thus the truth of the matter is that W took over a rapidly crashing economy and have seen us through it in pretty good order. If you don't believe it, try looking at the Japanese, German, or French economies. If it wasn't for us (with W in charge), the world would be in the toilet.
Note: The charts were shamelessly taken from Big Charts.com and the lines for January 20, 2001 were crudely drawn by me, using Photoshop Elements 2.0.
The bull market is back, according to at least some definitions of the term.
The Standard & Poor's 500 index this past week posted its best quarterly gain since late 1998. Wall Street's three main gauges are at their highest levels in a year. Investors are more upbeat that an economic rebound, three years in coming, is now under way.
The beauty of having dollar-denominated debts in a world of currency fluctuations is that the United States is fairly insulated. If the foreign currency crashes, foreign borrowers take the hit. If the dollar crashes, foreign lenders take the hit. Foreigners are screwed either way.
Why do foreign investors invest so heavily in dollar-denominated assets and bear the risk of a decline in the dollar? Personally, I think it is because they are stupid. But that is not an appropriate answer for an economist to give.
To recap, the English and French collaborated to build a tunnel under part of an ocean that is four times as long, at less cost, and in one sixth the time.
The day Bush took office the NASDAQ was in the 2500 neighborhood. Remember when it was over 5000? That's right, half of the value of our high-tech portfolios and 401Ks dissipated under Slick "It's the economy, stupid!" Willie.
But now that Bush's third tax cut has passed, things are finally looking up. Greenspan (when are we going to rid ourselves of this man?) cautiously said that there are indications of a "fairly marked turnaround" and that deflation is a "low-probability event". And even though earlier this year he poo-pooed the suggestion that Bush's tax cuts were a good idea, Greenspan "suggested that the fiscal plan signed into law last week by President George W. Bush could have a positive effect on labor markets."
The outlook for manufacturing improved as the "manufacturing index rose to 49.4 in May from 45.4 in April, the biggest monthly gain since December. Order backlogs grew for the first time since June."
Grover Norquist, president of Americans for Tax Reform, which advocates deep tax cuts, said the trimmed-down tax package will ultimately swell into one that conservatives will cheer. The 2001 tax cut, scored at $1.3 trillion, will actually amount to $1.9 trillion when certain tax provisions are extended, he said, and the current tax cut could amount to $1 trillion.
''If this was the only tax bill of the Bush administration, then the difference between $726 [billion] and $350 [billion] would be of concern. If this was the last bill, it would be of concern,'' Norquist said. ''But because we're looking at an annual tax cut, it's less of a problem. They'll be back.''
The recent spate of surpluses ceased to be exactly at the same time economic growth slowed. In 1997 GDP growth was 6.5%, in 1998 and 1999 it was 5.6%, in 2000 it was 5.9% and in 2001 it was 2.6%. And guess what? deficits returned in 2002. Funny how that works.
But assuming that keeping a handle on the deficit is a good thing, the one common-sense method that is never talked about enough is keeping a handle on spending. President Bush has vowed to work with congress to do just that ("Moving toward a balanced budget also requires that we hold federal spending to a responsible level,'' he said during today's radio address. "Spending discipline is crucial to my economic program."), he is responsible for the largest unfunded mandate (to the states) currently in existence: the No Child Left Behind Act of 2001. Federal government will continue to strangle the economy until both the president and congress stops pumping up social programs and wasting our money on pork.
France, however, is taking a far different approach (dare I say, Bush-like?). President Chirac actually cut taxes. In the final quarter of last year, he cut income taxes by 5%, and will do another 1% this year. Spurred by the increase in consumer spending made possible by the tax reduction, France's economy grew .06% in the first quarter, while Germany, Italy and the Netherl
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Federal Reserve Bank of Kansas City President Thomas Hoenig describes our national debt as "unsustainable" and says that we have to take "difficult" steps to 
For far too long, the conventional wisdom in Washington has been that budget deficits don't matter. At least not enough to warrant doing anything painful to rein them in.
Dow Jones Industrial Average 
Second, the housing boom has been fueling U.S. economic growth. A bubble pop would put thousands out of work and halt the infusion of cash into the economy — as much of the cash is from families 
The bubble has already occured and burst in the U.K. and Australia, but there is evidence that there is a 
While it is true that some countries have seen a net increase in factory jobs during the time period, the global average was a loss of 11%. Most surprising was that China had an even greater loss than the US.
From the 
When he took the oath of office in January 1993, newly elected President Bill Clinton inherited a robust economic recovery that had been under way for almost two years, fortified by the strong momentum that had been building up in the US economy for more than a decade. When he left the White House eight years later in January 2001, Clinton bequeathed his successor -- and the American people -- an incipient recession and a severely wounded economy that has yet to recuperate from the long-term damage inflicted by his administration during its two terms in office.
The newly designed $20 bill will 
