Economy's Rescue Only Half Done - WSJ.com
Perhaps the focus on manufacturing is also a red herring.
It's an appealing red herring because the jobs and the education required to hold those jobs were looked upon as lifetime employment.
As industry replaced agriculture and information replaced industry, societies have had to undergo wrenching changes. Right now China is undergoing the change from an agrarian to an industrial economy, while also leaping into the information age.
California (before the taxes and burdens of State entitlements crippled it) had found a way by attracting the best and the brightest to have a thriving economy that rapidly absorbed new workers with jobs that continued to be able to offer higher and higher wages. This is what one would think the country should be looking for.
It's all nice and good to think there were halcyon days of lifetime manufacturing work with a high school education; but, just as mechanized farming replaced hand labor, so that people were suddenly able to eat better and only 1-2% (vs. 98% in the Middle Ages, with most people never having enough to eat) of society could grow all of society's food; so the US has to recognize that either additional capital or low cost labor are now providing more goods at lower cost.
The government is failing its citizens who want to move ahead by deciding it has to keep giving out benefits and spending resources that need to go into the economy as 'additional capital' into 'additional personal consumption'.
The governmental entities that have been doing this the longest, with the most deleterious effects - e.g. California and Michigan - should be a warning of what's to come. Sadly, they are the model for the Obama/Pelosi administration.
Thursday, December 31, 2009
California Here We Come! article: Economy's Rescue Only Half Done - WSJ.com
Economy's Rescue Only Half Done - WSJ.com
It is interesting to read the last part of this article in which there is a discussion of a commission to address the deficit.
As in other WS Journal articles on this 'Commission', it's clear that its goal is to find cover to raise taxes - i.e. to permanently deliver to the government a bigger share of the nation's output of goods and services.
The article begins by reiterating how the mortgage market has effectively been nationalized in that taxpayer funds are directly subsidizing mortgage rates to keep them down.
When one adds up all these 'distortions' to a free economy - balancing out saving and investing, returns to capital and labor (highlighted by the UAW bailout vis-a-vis GM and the union favoring bills, which even found their way into the healthcare overhaul legislation), humongous borrowing demands of the government, which is basically trying to prop up the economy like an out-of-work (or part-time) worker who keeps up the appearance of a previous lifestyle by running up his credit cards, everything has a very uneasy feeling about it.
A, perhaps further along, parallel is the California governor asking for a federal bailout in lieu of addressing the state's overspending and overtaxing that every commenter clearly wrote about in their comments to yesterday's WSJ article.
If the Obama administration acts like the Democrats who've run California for all these years (and, where does Pelosi come from?), isn't it like the old rubric "if it quacks like a duck and looks like a duck, it must be a duck!". In other words, is there any reason to believe - unless a miracle happens both to the Republican Party's platform and the election results next November - that the country's heading down the California Road?
It is interesting to read the last part of this article in which there is a discussion of a commission to address the deficit.
As in other WS Journal articles on this 'Commission', it's clear that its goal is to find cover to raise taxes - i.e. to permanently deliver to the government a bigger share of the nation's output of goods and services.
The article begins by reiterating how the mortgage market has effectively been nationalized in that taxpayer funds are directly subsidizing mortgage rates to keep them down.
When one adds up all these 'distortions' to a free economy - balancing out saving and investing, returns to capital and labor (highlighted by the UAW bailout vis-a-vis GM and the union favoring bills, which even found their way into the healthcare overhaul legislation), humongous borrowing demands of the government, which is basically trying to prop up the economy like an out-of-work (or part-time) worker who keeps up the appearance of a previous lifestyle by running up his credit cards, everything has a very uneasy feeling about it.
A, perhaps further along, parallel is the California governor asking for a federal bailout in lieu of addressing the state's overspending and overtaxing that every commenter clearly wrote about in their comments to yesterday's WSJ article.
If the Obama administration acts like the Democrats who've run California for all these years (and, where does Pelosi come from?), isn't it like the old rubric "if it quacks like a duck and looks like a duck, it must be a duck!". In other words, is there any reason to believe - unless a miracle happens both to the Republican Party's platform and the election results next November - that the country's heading down the California Road?
Tuesday, December 29, 2009
An Official Notice of Future 'Crowding Out' of Private Investment: Fed Proposes Tool to Drain Extra Cash - WSJ.com
Fed Proposes Tool to Drain Extra Cash - WSJ.com
It's been rather obvious that the Fed is likely to have to step in to help funding the government's borrowing again in 2010.
As such, it will effectively be either using 'new printing' or 'crowding out' of private investment.
This sure looks like the Fed is trying to float a red herring of monetary prudence to obfuscate the first stages of crowding out.
They almost make it sound like something good that banks won't have the money to fund business borrowing to create jobs. But, isn't that what the government really wants - more people obliged to work for government or be on government's dole?
Are we really through the first inning yet of this economic game?
It's been rather obvious that the Fed is likely to have to step in to help funding the government's borrowing again in 2010.
As such, it will effectively be either using 'new printing' or 'crowding out' of private investment.
This sure looks like the Fed is trying to float a red herring of monetary prudence to obfuscate the first stages of crowding out.
They almost make it sound like something good that banks won't have the money to fund business borrowing to create jobs. But, isn't that what the government really wants - more people obliged to work for government or be on government's dole?
Are we really through the first inning yet of this economic game?
Monday, December 28, 2009
Market Clearing Activities or Another Bubble? U.S. Looks Abroad in Another Week of Big Borrowing - WSJ.com
U.S. Looks Abroad in Another Week of Big Borrowing - WSJ.com
If this isn't a bubble, then what is?
The paper again today is replete with articles highlighting the parallel hopes for a revival of the private economy, an expansion of the government's role in the economy, huge and ongoing government demands for capital and no incentive to save.
As for programs to support business there is hopeful talk by economist and market participants but popular angst and antipathy in comments blaming banks for current levels of unemployment.
Do the above comments suggest the American economy is righting itself to fairly compete in the global economy and add jobs? Or, is it going in the wrong direction?
It appears clear that the government is more concerned with supporting what are clearly non-clearing prices for housing, etc. with additional subsidies that can come from only one place - the freely clearing forces of the market.
If this isn't a bubble, then what is?
The paper again today is replete with articles highlighting the parallel hopes for a revival of the private economy, an expansion of the government's role in the economy, huge and ongoing government demands for capital and no incentive to save.
As for programs to support business there is hopeful talk by economist and market participants but popular angst and antipathy in comments blaming banks for current levels of unemployment.
Do the above comments suggest the American economy is righting itself to fairly compete in the global economy and add jobs? Or, is it going in the wrong direction?
It appears clear that the government is more concerned with supporting what are clearly non-clearing prices for housing, etc. with additional subsidies that can come from only one place - the freely clearing forces of the market.
Sunday, December 27, 2009
Shorting the Economic Recovery - Interview with Kevin Duffy and Bill Laggner - Barrons.com
Shorting the Economic Recovery - Interview with Kevin Duffy and Bill Laggner - Barrons.com: "Shorting the Economic Recovery
By ROBIN GOLDWYN BLUMENTHAL | MORE ARTICLES BY AUTHOR
A Q&A WITH KEVIN DUFFY AND BILL LAGGNER: Two hedge-fund managers predict the economy's next leg down. Shorting Goldman Sachs."
This article is worth reading!
By ROBIN GOLDWYN BLUMENTHAL | MORE ARTICLES BY AUTHOR
A Q&A WITH KEVIN DUFFY AND BILL LAGGNER: Two hedge-fund managers predict the economy's next leg down. Shorting Goldman Sachs."
This article is worth reading!
Saturday, December 26, 2009
Tedford Bets on Rising Inflation - WSJ.com
Tedford Bets on Rising Inflation - WSJ.com
Telford's project also track with the facts of a highly to substantively putative fiscal policy and a highly stimulative monetary policy. On one hand the government is putting more and more obstacles in front of real economic growth and job creation; while, with the other (monetary policy), it assumes it can overcome the higher taxes, pro-union, labor cost increasing policies that make investment and job creation less attractive and higher risk.
It's hard to see a different outcome - in particular with the risk of rising costs for Federal borrowing which will ripple or crash through the economy - almost at any time.
It's hard to see a difference between the nirvanaland hopes of the administration today and that of homebuyers in the recent bubble.
It may also be that Federal spending, based on borrowing, is replacing the normal inflationary impact of private bank lending and borrowing.
Telford's project also track with the facts of a highly to substantively putative fiscal policy and a highly stimulative monetary policy. On one hand the government is putting more and more obstacles in front of real economic growth and job creation; while, with the other (monetary policy), it assumes it can overcome the higher taxes, pro-union, labor cost increasing policies that make investment and job creation less attractive and higher risk.
It's hard to see a different outcome - in particular with the risk of rising costs for Federal borrowing which will ripple or crash through the economy - almost at any time.
It's hard to see a difference between the nirvanaland hopes of the administration today and that of homebuyers in the recent bubble.
It may also be that Federal spending, based on borrowing, is replacing the normal inflationary impact of private bank lending and borrowing.
As Slump Hits Home, Cities Downsize Their Ambitions - WSJ.com
As Slump Hits Home, Cities Downsize Their Ambitions - WSJ.com
(Lloyd wrote: "Cities should not only downsize their ambitions, but also wages and benefits to workers. If tax revenues are down 11%, so should the salaries and benefits of all workers be adjusted. When revenue goes back up, then readjust them. When regular taxpayers are hurting, so should the federal, state and local workers. There will come a time that they will have wished that they bit the bullet with us.")
Lloyd is right on the money.
Part of the problem that the US economy is exacerbating under the current administration rather than correcting is that government has grown too big and pervasive and those who are paying for government are being starved of the services they are paying for. (As above, high government benefits in Phil. but no street cleaning.)
In the aggregate, it is even worse as tax money goes to subsidize government jobs that are overpaid in most cases (underpaid in a few); but, allocated to the delivery of services that are beyond what the society can fairly afford. Society doesn't work like the communist ideal - rather, just the opposite.
An interesting quote from an old article (2009) in the WSJ sums up the problem of overpaid government workers:
"Ohanian has written numerous papers on the Depression. In one earlier paper, he pinned the persistence of high unemployment on New Deal policies, "which raised real wages substantially above market-clearing levels, which in turn kept employment and output low."
Franklin D. Roosevelt's administration did prolong the Depression with a mixture of high taxes and price-fixing, as some economists and historians are beginning to acknowledge."
If government continues to take the taxes out of society and overpay for employment of government workers, it distorts the whole society.
Since a lot of the current economic recovery is based on interest rate distortions, government borrowing and Fed printing, the liklihood of a second economic downleg increases if foreign central banks decide not to print their own currencies to buy US Treasuries - as forecast by some to have started and others as likely come April. Who knows? But the risks are there and they are being ignored as the article states by public unions, which have been striking for wage increases. Unbelievable!
(Lloyd wrote: "Cities should not only downsize their ambitions, but also wages and benefits to workers. If tax revenues are down 11%, so should the salaries and benefits of all workers be adjusted. When revenue goes back up, then readjust them. When regular taxpayers are hurting, so should the federal, state and local workers. There will come a time that they will have wished that they bit the bullet with us.")
Lloyd is right on the money.
Part of the problem that the US economy is exacerbating under the current administration rather than correcting is that government has grown too big and pervasive and those who are paying for government are being starved of the services they are paying for. (As above, high government benefits in Phil. but no street cleaning.)
In the aggregate, it is even worse as tax money goes to subsidize government jobs that are overpaid in most cases (underpaid in a few); but, allocated to the delivery of services that are beyond what the society can fairly afford. Society doesn't work like the communist ideal - rather, just the opposite.
An interesting quote from an old article (2009) in the WSJ sums up the problem of overpaid government workers:
"Ohanian has written numerous papers on the Depression. In one earlier paper, he pinned the persistence of high unemployment on New Deal policies, "which raised real wages substantially above market-clearing levels, which in turn kept employment and output low."
Franklin D. Roosevelt's administration did prolong the Depression with a mixture of high taxes and price-fixing, as some economists and historians are beginning to acknowledge."
If government continues to take the taxes out of society and overpay for employment of government workers, it distorts the whole society.
Since a lot of the current economic recovery is based on interest rate distortions, government borrowing and Fed printing, the liklihood of a second economic downleg increases if foreign central banks decide not to print their own currencies to buy US Treasuries - as forecast by some to have started and others as likely come April. Who knows? But the risks are there and they are being ignored as the article states by public unions, which have been striking for wage increases. Unbelievable!
Friday, December 25, 2009
How long the greed?N.Y. Teachers' Pension Change Prompts Rush to Lock In Benefits - WSJ.com
N.Y. Teachers' Pension Change Prompts Rush to Lock In Benefits - WSJ.com
The unions have had their selfish blinders on; and, let's hope, what goes around fairly comes around.
I'm more familiar with the egregious behavior of the teachers union in California; but, from what I read, it's the same in other states.
The union wants to preserve seniority benefits and maintain no accountability for performance. As a result, education costs are too high and results are too low.
Unions in the US try to get as much as they can for their members and by taking too much out of the system, they kill it or sorely wound it.
Right now the US is thinking it will have low interest rates to support the socialization of the economy while, at the same time, its economic competitors in Asia are more fairly allocating economic returns to those who produce them.
If one looks at the economic performance of California, Michigan or the UAW, it would appear unequivocally obvious that too much government spending and too high taxes result in lost jobs, businesses leaving, higher unemployment and higher interest rates.
Part of this excess is in the overly generous benefits paid in retirement (in other words, in a period when there is absolutely no production, just consumption).
Almost everyone accepts that a family that overspends on its credit cards it likely to eventually have to go bankrupt. But, when it's government that is overspending, somehow people feel it can go on indefinitely. Maybe it can or maybe it can't.
But, that's the choice. As for the teachers and other public unions, they appear to be banking on the fact that their pensions and benefits are not overly generous and that the rest of society will continue to accept and be able to bear these costs. We'll see!
All I'm saying is that it appears to me that it's a position which has already caused the economy to be losing its economic potential and like a small leak in a balloon, as less air remains, you either plug the hole or wait for the balloon to shrink further. I see the public unions hoping to continue be able to such air from the balloon of the economy and hope that there's some other magic source of new air. Maybe there will be? But, so far, it appears as though few forecasters see jobs coming back to cut the unemployment/underemployment rate.
To restore the economy, those who produce need to be rewarded and those who don't produce have to recognize that they were right in guessing they were being fed a bill of goods on their ability to retire early, etc.
Those pensions are consumption, not investment, not anything contributing to the future or the rebuilding of society; so, who should sacrifice?
The unions have had their selfish blinders on; and, let's hope, what goes around fairly comes around.
I'm more familiar with the egregious behavior of the teachers union in California; but, from what I read, it's the same in other states.
The union wants to preserve seniority benefits and maintain no accountability for performance. As a result, education costs are too high and results are too low.
Unions in the US try to get as much as they can for their members and by taking too much out of the system, they kill it or sorely wound it.
Right now the US is thinking it will have low interest rates to support the socialization of the economy while, at the same time, its economic competitors in Asia are more fairly allocating economic returns to those who produce them.
If one looks at the economic performance of California, Michigan or the UAW, it would appear unequivocally obvious that too much government spending and too high taxes result in lost jobs, businesses leaving, higher unemployment and higher interest rates.
Part of this excess is in the overly generous benefits paid in retirement (in other words, in a period when there is absolutely no production, just consumption).
Almost everyone accepts that a family that overspends on its credit cards it likely to eventually have to go bankrupt. But, when it's government that is overspending, somehow people feel it can go on indefinitely. Maybe it can or maybe it can't.
But, that's the choice. As for the teachers and other public unions, they appear to be banking on the fact that their pensions and benefits are not overly generous and that the rest of society will continue to accept and be able to bear these costs. We'll see!
All I'm saying is that it appears to me that it's a position which has already caused the economy to be losing its economic potential and like a small leak in a balloon, as less air remains, you either plug the hole or wait for the balloon to shrink further. I see the public unions hoping to continue be able to such air from the balloon of the economy and hope that there's some other magic source of new air. Maybe there will be? But, so far, it appears as though few forecasters see jobs coming back to cut the unemployment/underemployment rate.
To restore the economy, those who produce need to be rewarded and those who don't produce have to recognize that they were right in guessing they were being fed a bill of goods on their ability to retire early, etc.
Those pensions are consumption, not investment, not anything contributing to the future or the rebuilding of society; so, who should sacrifice?
Buckle Up for 2010 - Barrons.com
Buckle Up for 2010 - Barrons.com
There are some lingering questions when one puts one statement against another:
1. Private investors are dis-investing from the US market and putting the money offshore; [lots of foreign countries have lower taxes, labor costs, etc.]; "U.S. companies earn a third of their sales abroad"; and, the projection is for US companies to start investing back in the US to add jobs.
Answer: Isn't it more likely expansion by US companies will take place abroad (i.e. fewer jobs in the US)?
2. Everyone appears to look at past market precedents to come up with projections for 2010. But, are we not more like the 30's in terms of government policy than the 80's or 90's? In other words, the government makes no bones about plans to increase it's share of GDP from 20% to 30% (not unlike in the '30's).
Along with this shift in economic resources, we have higher taxes and higher borrowing. So, where can one look for something parallel to this (which is missing from this article)?
Answer: Isn't California a good example of what is more likely to happen to the US?
Just before Christmas the California governor states that he can't see how to close a $21 billion deficit. This comes from a state with some of the highest taxes. Sound familiar?
It would seem logical to correlate California with the US - just a few years or months down the road. California has an exodus of businesses and an eroding tax base, very high interest rates, etc.
There are some lingering questions when one puts one statement against another:
1. Private investors are dis-investing from the US market and putting the money offshore; [lots of foreign countries have lower taxes, labor costs, etc.]; "U.S. companies earn a third of their sales abroad"; and, the projection is for US companies to start investing back in the US to add jobs.
Answer: Isn't it more likely expansion by US companies will take place abroad (i.e. fewer jobs in the US)?
2. Everyone appears to look at past market precedents to come up with projections for 2010. But, are we not more like the 30's in terms of government policy than the 80's or 90's? In other words, the government makes no bones about plans to increase it's share of GDP from 20% to 30% (not unlike in the '30's).
Along with this shift in economic resources, we have higher taxes and higher borrowing. So, where can one look for something parallel to this (which is missing from this article)?
Answer: Isn't California a good example of what is more likely to happen to the US?
Just before Christmas the California governor states that he can't see how to close a $21 billion deficit. This comes from a state with some of the highest taxes. Sound familiar?
It would seem logical to correlate California with the US - just a few years or months down the road. California has an exodus of businesses and an eroding tax base, very high interest rates, etc.
Wednesday, December 23, 2009
The 10% Factor; Home Sales, Prices Brighten - WSJ.com
Home Sales, Prices Brighten - WSJ.com
An interesting thought comes to mind in terms of how to view the economy going forward.
1) Consider the fact that the current administration is working to take the percent of GDP spent by the Federal government from roughly 20% to pushing 30%. In other words, 10% of GDP that went to the private sector to produce goods and services will now be taken from the private sector and spent by government. The government's choice of economic utility of goods and services, not the individual' or business' choice.
We can call this a substitution effect, reallocation, whatever - but, it is a transfer of spending.
2) As with any transfer of spending - say you'd have bought chicken for dinner but decide on canned tuna. In one case there is more demand for chicken, in the other tuna.
Add this up on a macro scale and you have a lot of private demand having to go away. You can look at this as the difference between between just 20% and 30% - which is a 50% difference; or, you could look at the difference in the aggregate of the whole economy, where it is 10%.
3) It's perhaps just playing with numbers, but logic says that when part of the economy has to go away (i.e. the part of the private economy that used to represent that 10% of GDP now being taken by government), then jobs in that part of the economy and companies that were there - they also have to go away.
Clearly, they may be replaced; but, the government tends to be an inefficient producer if it really produces at all. And, there are lots of studies that purport government workers to be paid anywhere in the range of 50-100% more than workers in the private sector (benefit programs, etc.).
4) Now, we have a situation where healthcare taxes may be roughly $12-15,000 per year for an average family. So, if the breadwinner is being paid $100-200,000 per year, this is a sizable but not outlandish sum.
However, if the breadwinner is earning only $20,000 a year... you can see where this goes.
But ah, the subsidy from uncle. Well, maybe so; but, it is an economic distortion - someone else (or many someones are going to have to fore-go something else they would have bought (higher economic utility) in favor of giving their money to uncle to redistribute.
Most people I know like a bargain and they hate to be cheated. How this additional burden on producers to keep less of what they produce will impact the economy isn't calculated. Also, these producers will have less remaining to invest.
And, if there isn't a scary bottom line, the government - by taking 30% vs. 20% - basically becomes the arbiter of investment and consumption - and, as we know, the government isn't really good at either one; at least not as effective as the individual business owner or the shopper looking for a bargain.
So, how much money will be left in society for housing?
An interesting thought comes to mind in terms of how to view the economy going forward.
1) Consider the fact that the current administration is working to take the percent of GDP spent by the Federal government from roughly 20% to pushing 30%. In other words, 10% of GDP that went to the private sector to produce goods and services will now be taken from the private sector and spent by government. The government's choice of economic utility of goods and services, not the individual' or business' choice.
We can call this a substitution effect, reallocation, whatever - but, it is a transfer of spending.
2) As with any transfer of spending - say you'd have bought chicken for dinner but decide on canned tuna. In one case there is more demand for chicken, in the other tuna.
Add this up on a macro scale and you have a lot of private demand having to go away. You can look at this as the difference between between just 20% and 30% - which is a 50% difference; or, you could look at the difference in the aggregate of the whole economy, where it is 10%.
3) It's perhaps just playing with numbers, but logic says that when part of the economy has to go away (i.e. the part of the private economy that used to represent that 10% of GDP now being taken by government), then jobs in that part of the economy and companies that were there - they also have to go away.
Clearly, they may be replaced; but, the government tends to be an inefficient producer if it really produces at all. And, there are lots of studies that purport government workers to be paid anywhere in the range of 50-100% more than workers in the private sector (benefit programs, etc.).
4) Now, we have a situation where healthcare taxes may be roughly $12-15,000 per year for an average family. So, if the breadwinner is being paid $100-200,000 per year, this is a sizable but not outlandish sum.
However, if the breadwinner is earning only $20,000 a year... you can see where this goes.
But ah, the subsidy from uncle. Well, maybe so; but, it is an economic distortion - someone else (or many someones are going to have to fore-go something else they would have bought (higher economic utility) in favor of giving their money to uncle to redistribute.
Most people I know like a bargain and they hate to be cheated. How this additional burden on producers to keep less of what they produce will impact the economy isn't calculated. Also, these producers will have less remaining to invest.
And, if there isn't a scary bottom line, the government - by taking 30% vs. 20% - basically becomes the arbiter of investment and consumption - and, as we know, the government isn't really good at either one; at least not as effective as the individual business owner or the shopper looking for a bargain.
So, how much money will be left in society for housing?
Monday, December 21, 2009
The 'Global Imbalances' Myth - WSJ.com
The 'Global Imbalances' Myth - WSJ.com
When one talks about 'imbalances', the old investment adage of 'regression to the mean' immediately comes to mind.
What does this mean? Well, if you are making more money than someone else with comparable skills, then it's likely that either your salary will go down or the other person's up, or some combination of the two.
As they teach in supply and demand 101, if there is more demand for goods at a price that the market can afford to produce the goods for, then the supply of those goods will increase.
The other factor to consider is 'you don't get something for nothing'.
One reads a lot of moaning and groaning from Americans about the fact that somehow trade laws have allowed the Chinese (etc.) to take away American jobs. (But, isn't this regression to the mean? In other words, the US has high labor costs, etc. and are on the high upper side of the cost curve. On the bottom side of that curve are the Chinese. Thus, logic says US costs have to come down (or US productivity has to measurably increase) and visa-versa, the Chinese. And, this has been happening.
It's all well and good to try to readjust global imbalances, but, as with the three homonyms above, when one tries to ignore one or more of them, the result is often an exacerbation rather than a correction of the imbalances.
Clearly in the US today the government is trying to put together policies that are hampering businesses ability to compete and raising labor costs, while facing high unemployment. Lots of people say they want all these government benefits, they're a bit worried about the borrowing to pay for them, but they trust that the government will somehow find 'someone else' to tax to pay for them. (Here we have one of America's big problems - the idea that there is a 'free lunch' - i.e. you can get something for nothing.)
People like to be rewarded for their work, they like to be rewarded for deferred gratification (i.e. savings and investing), but when it comes to government policy, the administration and congress are looking to do just the opposite. The government wants to reward without commensurately requiring anything back; and, for those who are asked to foot the bill, the government doesn't even begin to plan on offering comparable benefits.
Ah - but 'social equity' one says. Well, here's the big imbalancer. If the US wants to run on the basis of social equity - i.e. not economic equity, etc.; then, it has to make sure everyone else in the world feels the same way. But, here again we have that old nemesis of 'regression to the mean'.
Americans live a lifestyle that would be and is the envy of a great deal of the world. Americans enjoy more the use of more of the world's resources, etc. And, other economies are gearing up to get some of this same good living - producing the goods, buying the resources, etc. to make their economies more productive.
To deal with these global imbalances, America needs to consider how to redress the imbalances it is and has been creating in its own country to meet the challenges of a globalizing world. And, make no mistake, the world is going to be globalizing (i.e. improving local lifestyles) with or without America.
So, maybe Americans should have tariffs so that autoworkers could sell $50,000 cars (to pay union benefits) while the competition offers the same car for $30,000. (Ah, but non-union US factories already offer this.)
And, maybe America shouldn't worry about the teachers unions putting teachers first and students last. But, what is the price America is willing to pay for an undereducated part of its population?
Etc., etc., etc.
When one talks about 'imbalances', the old investment adage of 'regression to the mean' immediately comes to mind.
What does this mean? Well, if you are making more money than someone else with comparable skills, then it's likely that either your salary will go down or the other person's up, or some combination of the two.
As they teach in supply and demand 101, if there is more demand for goods at a price that the market can afford to produce the goods for, then the supply of those goods will increase.
The other factor to consider is 'you don't get something for nothing'.
One reads a lot of moaning and groaning from Americans about the fact that somehow trade laws have allowed the Chinese (etc.) to take away American jobs. (But, isn't this regression to the mean? In other words, the US has high labor costs, etc. and are on the high upper side of the cost curve. On the bottom side of that curve are the Chinese. Thus, logic says US costs have to come down (or US productivity has to measurably increase) and visa-versa, the Chinese. And, this has been happening.
It's all well and good to try to readjust global imbalances, but, as with the three homonyms above, when one tries to ignore one or more of them, the result is often an exacerbation rather than a correction of the imbalances.
Clearly in the US today the government is trying to put together policies that are hampering businesses ability to compete and raising labor costs, while facing high unemployment. Lots of people say they want all these government benefits, they're a bit worried about the borrowing to pay for them, but they trust that the government will somehow find 'someone else' to tax to pay for them. (Here we have one of America's big problems - the idea that there is a 'free lunch' - i.e. you can get something for nothing.)
People like to be rewarded for their work, they like to be rewarded for deferred gratification (i.e. savings and investing), but when it comes to government policy, the administration and congress are looking to do just the opposite. The government wants to reward without commensurately requiring anything back; and, for those who are asked to foot the bill, the government doesn't even begin to plan on offering comparable benefits.
Ah - but 'social equity' one says. Well, here's the big imbalancer. If the US wants to run on the basis of social equity - i.e. not economic equity, etc.; then, it has to make sure everyone else in the world feels the same way. But, here again we have that old nemesis of 'regression to the mean'.
Americans live a lifestyle that would be and is the envy of a great deal of the world. Americans enjoy more the use of more of the world's resources, etc. And, other economies are gearing up to get some of this same good living - producing the goods, buying the resources, etc. to make their economies more productive.
To deal with these global imbalances, America needs to consider how to redress the imbalances it is and has been creating in its own country to meet the challenges of a globalizing world. And, make no mistake, the world is going to be globalizing (i.e. improving local lifestyles) with or without America.
So, maybe Americans should have tariffs so that autoworkers could sell $50,000 cars (to pay union benefits) while the competition offers the same car for $30,000. (Ah, but non-union US factories already offer this.)
And, maybe America shouldn't worry about the teachers unions putting teachers first and students last. But, what is the price America is willing to pay for an undereducated part of its population?
Etc., etc., etc.
Sunday, December 20, 2009
For Stocks, the Worst Decade Ever - WSJ.com
For Stocks, the Worst Decade Ever - WSJ.com
Let's see? The government let the UAW take the equity from stock and bondholders of GM. The equity holders got wiped out.
We now have 10% nominal, 20% real (U6) unemployment.
Is it possible that all these statistics are telling us something? And, could this something be that its not a good idea to invest in America?
(for more see: http://economy-solutions.blogspot.com/)
Let's see? The government let the UAW take the equity from stock and bondholders of GM. The equity holders got wiped out.
We now have 10% nominal, 20% real (U6) unemployment.
Is it possible that all these statistics are telling us something? And, could this something be that its not a good idea to invest in America?
(for more see: http://economy-solutions.blogspot.com/)
Saturday, December 19, 2009
Engines of Destruction - Editorial Commentary - Thomas G. Donlan - Barrons.com
Engines of Destruction - Editorial Commentary - Thomas G. Donlan - Barrons.com:
"People may wonder what the cures are but, the cures are totally unacceptable as long as the government can borrow money to feed the maw of socially conscious equality of outcomes.
We all know the solution - at least at some deep down level.
In other words, there is no free lunch. When you take from producers and give to non-producers, gee-whiz, the producers have less incentive to work hard and produce more.
As with overspending on credit cards, the only recourse may be to go bankrupt and get a new start.
Sadly for the US, the government is going to spend, borrow and tax every dollar they can get their hands on to delay this need.
And, as a result it may feel good for a while (albeit we have effectively 1 in 5 unemployed, underemployed or having given up on looking for a job), but that still leaves lots of believers in OandP magic.
We need to let people keep more of what they earn (income or investment income) and government has to give away less. In that way, when a young family wants a house, they can save more of their income (it won't go to give healthcare to the elderly and poor, it won't go to overpay public employees, etc.) and employers can better lower their costs of labor and reduce their costs of capital - in that way, the US will have a better economic base to compete in a changing world."
"People may wonder what the cures are but, the cures are totally unacceptable as long as the government can borrow money to feed the maw of socially conscious equality of outcomes.
We all know the solution - at least at some deep down level.
In other words, there is no free lunch. When you take from producers and give to non-producers, gee-whiz, the producers have less incentive to work hard and produce more.
As with overspending on credit cards, the only recourse may be to go bankrupt and get a new start.
Sadly for the US, the government is going to spend, borrow and tax every dollar they can get their hands on to delay this need.
And, as a result it may feel good for a while (albeit we have effectively 1 in 5 unemployed, underemployed or having given up on looking for a job), but that still leaves lots of believers in OandP magic.
We need to let people keep more of what they earn (income or investment income) and government has to give away less. In that way, when a young family wants a house, they can save more of their income (it won't go to give healthcare to the elderly and poor, it won't go to overpay public employees, etc.) and employers can better lower their costs of labor and reduce their costs of capital - in that way, the US will have a better economic base to compete in a changing world."
2010 Unlikely to Make Treasury Holders Smile - Current Yield - Randall W. Forsyth - Barrons.com
2010 Unlikely to Make Treasury Holders Smile - Current Yield - Randall W. Forsyth - Barrons.com:
"I keep wondering about the concept of 'crowding out' with all this government borrowing.
Eventually the money tap has to run dry. I recall in the early 80's the worry that Federal borrowing was roughly equal to the total savings of the country at the time and that little money was left for car loans, mortgages, etc.
I haven't looked at the comparable numbers today; but, globally, socially minded democracies are borrowing like crazy to keep government employees well paid and benefit programs full (except for Ireland, which recently cut some salaries; but including Greece which says it will cut its deficit while spending with abandon, hmmm - oh yeah, we believe them).
We aren't increasing production - at least domestically - because the economics don't work. But, we are trying to goose consumption.
Somehow all the rosey projections don't quite add up!"
"I keep wondering about the concept of 'crowding out' with all this government borrowing.
Eventually the money tap has to run dry. I recall in the early 80's the worry that Federal borrowing was roughly equal to the total savings of the country at the time and that little money was left for car loans, mortgages, etc.
I haven't looked at the comparable numbers today; but, globally, socially minded democracies are borrowing like crazy to keep government employees well paid and benefit programs full (except for Ireland, which recently cut some salaries; but including Greece which says it will cut its deficit while spending with abandon, hmmm - oh yeah, we believe them).
We aren't increasing production - at least domestically - because the economics don't work. But, we are trying to goose consumption.
Somehow all the rosey projections don't quite add up!"
More Than an Uptick? - Up and Down Wall Street - A. Abelson - Barrons.com
More Than an Uptick? - Up and Down Wall Street - A. Abelson - Barrons.com
Lots of people can't contain their antipathy to bankers. But is this justified? I don't think so.
It might be better to think of the banks (and really they are more investment houses these day - which is also where the bonuses are largely earned, or the trading desks; but heck, if the government had the people believing it was traders who got compensation based on trading gains, there wouldn't be the angst to amplify as a red herring) as the safety value on a pressure cooker.
In other words, we have huge economic forces at work in the world (to mention a few:
a) the Chinese who had little and are willing to work hard for a better living
b) the US government that currently believes socialism is paradise
c) American workers who are worried about jobs but don't seem to mind when their taxes go up so unionized government employees can earn far more in salaries and benefits than the private sector can afford
d) businesses that realize costs of production do matter and are having to source goods and services to stay competitive in a world economy
e) etc., etc.
But, since these forces are tumultuous, finance and currency changes, interest rate manipulation, huge government deficits to obfuscate the problems, etc. are all at play.
What's missing is honesty and common sense.
The average American took a long time to realize housing prices can't go up forever.
But, Americans can't believe they aren't entitled to all these benefits the Dems want to bestow. Bankers shouldn't be blamed - look to Washington!
Lots of people can't contain their antipathy to bankers. But is this justified? I don't think so.
It might be better to think of the banks (and really they are more investment houses these day - which is also where the bonuses are largely earned, or the trading desks; but heck, if the government had the people believing it was traders who got compensation based on trading gains, there wouldn't be the angst to amplify as a red herring) as the safety value on a pressure cooker.
In other words, we have huge economic forces at work in the world (to mention a few:
a) the Chinese who had little and are willing to work hard for a better living
b) the US government that currently believes socialism is paradise
c) American workers who are worried about jobs but don't seem to mind when their taxes go up so unionized government employees can earn far more in salaries and benefits than the private sector can afford
d) businesses that realize costs of production do matter and are having to source goods and services to stay competitive in a world economy
e) etc., etc.
But, since these forces are tumultuous, finance and currency changes, interest rate manipulation, huge government deficits to obfuscate the problems, etc. are all at play.
What's missing is honesty and common sense.
The average American took a long time to realize housing prices can't go up forever.
But, Americans can't believe they aren't entitled to all these benefits the Dems want to bestow. Bankers shouldn't be blamed - look to Washington!
More Taxes, Fewer Jobs - Lawmakers Weigh a Wall Street Tax - WSJ.com
Lawmakers Weigh a Wall Street Tax - WSJ.com:
"Isn't this the same old story - in just a slightly different version?
In other words, the US continues to work to make America a 'less-favorable' and 'less-attractive' place to do business, to maintain a business, to start a business - and, most importantly, to hire people!
Of course the correlation between a highly rewarding (read: low tax, low regulatory environment, low union threat, low mandatory benefit levels, etc.) environment and jobs seems to be totally unseen or ignored by the current administration and congress - as well as large parts of the population and the press.
Thus, while government spending soars, unionized government workers continue to receive outsize pay increases, all the government can do is blame banks for not lending to small businesses.
But, it's sort of like the housing credit bubble. The government is raising taxes and costs to small businesses in such a manner that it is unlikely the money will ever be able to be paid back. Thus, it is ridiculous not only for businesses to borrow (say to expand and add jobs) but for banks to lend to businesses that (as discussed in these responses before and at http://economy-solutions.blogspot.com/) will be seeing higher interest rates (and possibly obscenely higher interest rates) come along fairly soon.
As it is, with 20% unemployment (as said on Bloomberg Friday night and as evident in the government's own U-6 report, take the government's unemployment and other numbers and just 'double' them), the government still feels it necessary to print money to fund its deficit and to use some of this quantitative easing to subsidize mortgage rates, etc. So, where is all this borrowed money going to keep coming from?
How can we have 1% retail sales growth with 20% unemployment and private sector workers worried about salary cuts, let alone job cuts?
Somehow the math doesn't work; but, sadly the idea of government taking more money out of the economy seems like a train that can't slow down. But, like every out-of-control train, eventually something untoward usually happens. As if 20% unemployment wasn't untoward enough!"
"Isn't this the same old story - in just a slightly different version?
In other words, the US continues to work to make America a 'less-favorable' and 'less-attractive' place to do business, to maintain a business, to start a business - and, most importantly, to hire people!
Of course the correlation between a highly rewarding (read: low tax, low regulatory environment, low union threat, low mandatory benefit levels, etc.) environment and jobs seems to be totally unseen or ignored by the current administration and congress - as well as large parts of the population and the press.
Thus, while government spending soars, unionized government workers continue to receive outsize pay increases, all the government can do is blame banks for not lending to small businesses.
But, it's sort of like the housing credit bubble. The government is raising taxes and costs to small businesses in such a manner that it is unlikely the money will ever be able to be paid back. Thus, it is ridiculous not only for businesses to borrow (say to expand and add jobs) but for banks to lend to businesses that (as discussed in these responses before and at http://economy-solutions.blogspot.com/) will be seeing higher interest rates (and possibly obscenely higher interest rates) come along fairly soon.
As it is, with 20% unemployment (as said on Bloomberg Friday night and as evident in the government's own U-6 report, take the government's unemployment and other numbers and just 'double' them), the government still feels it necessary to print money to fund its deficit and to use some of this quantitative easing to subsidize mortgage rates, etc. So, where is all this borrowed money going to keep coming from?
How can we have 1% retail sales growth with 20% unemployment and private sector workers worried about salary cuts, let alone job cuts?
Somehow the math doesn't work; but, sadly the idea of government taking more money out of the economy seems like a train that can't slow down. But, like every out-of-control train, eventually something untoward usually happens. As if 20% unemployment wasn't untoward enough!"
Friday, December 18, 2009
No News Is Good News From the FOMC - Up and Down Wall Street Daily - R. Forsyth - Barrons.com
No News Is Good News From the FOMC - Up and Down Wall Street Daily - R. Forsyth - Barrons.com
Jason are you watching the forests or the drought that has affected everything else? In other words, with the fiscal policies totally opposed to growth and employment and the Fed trying its best to overcome such fiscal policy ineptitude, we have two strong forces that lead to misinterpretation.
The question is what is more important - the Fed or the fiscal policies?
As with Hitler and the Munich accords, I'm inclined to believe the Chamberlain character (Bernanke) is going to be overwhelmed.
What's nice about Randy is he tries to articulate some questions.
There are lots of red herrings out there - but, we have some stridently obvious examples standing in front of us - i.e. California, Michigan and GM. Each of them represent the core of Democratic policies and none of them are good economic harbingers.
We have Greece talking about a balanced budget with no attempt to rein in outlandish public employees.
There is such a different apparent world in the East, where social distribution appears to be slim and incentives to capital and investors appears to be high.
Take your choice. I think you may be missing the factors affecting the forest.
Jason are you watching the forests or the drought that has affected everything else? In other words, with the fiscal policies totally opposed to growth and employment and the Fed trying its best to overcome such fiscal policy ineptitude, we have two strong forces that lead to misinterpretation.
The question is what is more important - the Fed or the fiscal policies?
As with Hitler and the Munich accords, I'm inclined to believe the Chamberlain character (Bernanke) is going to be overwhelmed.
What's nice about Randy is he tries to articulate some questions.
There are lots of red herrings out there - but, we have some stridently obvious examples standing in front of us - i.e. California, Michigan and GM. Each of them represent the core of Democratic policies and none of them are good economic harbingers.
We have Greece talking about a balanced budget with no attempt to rein in outlandish public employees.
There is such a different apparent world in the East, where social distribution appears to be slim and incentives to capital and investors appears to be high.
Take your choice. I think you may be missing the factors affecting the forest.
U.S. Hurting in Wallet -- and Spirit - WSJ.com
U.S. Hurting in Wallet -- and Spirit - WSJ.com
One aspect impacting the traditional American spirit of optimism is that the individual, their rights, choices and opportunities are being usurped by ever bigger government.
This is felt not just in a paycheck (or lack thereof) but, if one has to rely on others, versus oneself, then one has to question who is going to decide that future.
And, with a government at both national and state levels (many states) determining that 'equality of outcome' is more important than 'equality of opportunity' - what can one expect?
A lot of people feel something is wrong - many are looking at effects and misdetermining causes - but, that is where leaders should come in. But, the guidance of more consumption, higher taxes and demands on producers to go to non-producers, is exactly the opposite of what America's economic competitors (e.g. China, et al) are doing.
It doesn't take a lot of education to see the disparity in the economic growth statistics; but, when unions and the government are saying all of 'you' should have more and it won't cost 'you' more (unless you are rich or own a business), the discontinuity may not be clear, the results may be discernible (but not something one can directly remedy on their own), so what happens?
The 1970's were like this for those of us growing up in the optimism and expectancy of the 1960's. This feels much much worse (and likely is). So far, as with Carter as president, the leadership seems to be going in exactly the wrong direction.
One aspect impacting the traditional American spirit of optimism is that the individual, their rights, choices and opportunities are being usurped by ever bigger government.
This is felt not just in a paycheck (or lack thereof) but, if one has to rely on others, versus oneself, then one has to question who is going to decide that future.
And, with a government at both national and state levels (many states) determining that 'equality of outcome' is more important than 'equality of opportunity' - what can one expect?
A lot of people feel something is wrong - many are looking at effects and misdetermining causes - but, that is where leaders should come in. But, the guidance of more consumption, higher taxes and demands on producers to go to non-producers, is exactly the opposite of what America's economic competitors (e.g. China, et al) are doing.
It doesn't take a lot of education to see the disparity in the economic growth statistics; but, when unions and the government are saying all of 'you' should have more and it won't cost 'you' more (unless you are rich or own a business), the discontinuity may not be clear, the results may be discernible (but not something one can directly remedy on their own), so what happens?
The 1970's were like this for those of us growing up in the optimism and expectancy of the 1960's. This feels much much worse (and likely is). So far, as with Carter as president, the leadership seems to be going in exactly the wrong direction.
New York to Slash Transit Service, Student Passes - WSJ.com
New York to Slash Transit Service, Student Passes - WSJ.com:
Some people argue that the pay raise is part of an existing union contract. But, what should be done about?
"It may be a 'contract', but it is so egregiously out-of-touch with reality, it should lead to the dissolution of the business forced to enter into it.
The public just needs to wake up to the greed of these thug-driven unions that extort too much from society.
A good solution would be to declare the union a criminal enterprise (which it acts like - can we say Mafia) and then declare the contract void.
There also is usually a contractual clause about 'duress', which has clearly applied here if the courts would have the guts.
But heck, the unions want to party on the ballroom of the ship while the rest of the crew is trying to plug leaks in the hull and bail out the water already accumulated.
But, do unions care? Not at all, they feel entitled to any food left on the table - and, if that means the rest of society has to do without, they could care less!
The only succor to the rest of society is that what goes around usually comes around.
Maybe these union thugs will be in their 80's when the checks just STOP coming! Wouldn't that be nice!"
Some people argue that the pay raise is part of an existing union contract. But, what should be done about?
"It may be a 'contract', but it is so egregiously out-of-touch with reality, it should lead to the dissolution of the business forced to enter into it.
The public just needs to wake up to the greed of these thug-driven unions that extort too much from society.
A good solution would be to declare the union a criminal enterprise (which it acts like - can we say Mafia) and then declare the contract void.
There also is usually a contractual clause about 'duress', which has clearly applied here if the courts would have the guts.
But heck, the unions want to party on the ballroom of the ship while the rest of the crew is trying to plug leaks in the hull and bail out the water already accumulated.
But, do unions care? Not at all, they feel entitled to any food left on the table - and, if that means the rest of society has to do without, they could care less!
The only succor to the rest of society is that what goes around usually comes around.
Maybe these union thugs will be in their 80's when the checks just STOP coming! Wouldn't that be nice!"
Thursday, December 17, 2009
Can the Economic Storm be Held Back? A Prozac Economy Has Its Costs - WSJ.com
A Prozac Economy Has Its Costs - WSJ.com:
"It is interesting how this discussion of stability seems to reflect what so many Americans write about their feelings - i.e. they don't like the turbulence and they don't like the changes and somehow they have to blame someone; but, is the blame not their own hubris?
In other words, we have a planet occupied by people who are jostling for a better economic life, a purer (in their view) religious life, etc. There is huge turbulence.
And, people want to reduce the turbulence in their own lives (regulation).
But, aren't the excesses talked about in this article actually attempts to deal with the outside forces (competitors, strivers, etc.) who are - in the case of the economy and say the Chinese, trying to get a richer life with more goods and services than they enjoyed before. (Concomitantly, the Islamic terrorists are at the extreme of a religion that thinks it can tell the people of the world the theocratic control system they should live under - but that's another matter.)
So, if the world economy is full of turbulence because of jockeying interests, what would logically be the result of trying to damp this turbulence down?
a) On one hand, it might be that one could dampen down the jockeying. The Chinese would stay poor, the US would stay rich. There wouldn't be economic change. But, is this realistic? Even addressing global warming would have to stop.
b) Or, will attempts to contain the turbulence just build up a greater headwall of a storm surge that will then explode in an even more violent disruption?
c) Also, is the current situation a stable one to protect vis-a-vis (a); or, is it intrinsically unstable because there's too much debt and too much consumption and productive resources are being consumed and not replenished?
It would appear as though in the US is in (c) hoping for (a).
Look at the UK labor strikes over the holiday season. Labor thinks it can hold back the need to cut costs. Is this delusional, myopic, self-defeating or suicidal? An outside observer would think suicidal; but, etc., etc., etc."
"It is interesting how this discussion of stability seems to reflect what so many Americans write about their feelings - i.e. they don't like the turbulence and they don't like the changes and somehow they have to blame someone; but, is the blame not their own hubris?
In other words, we have a planet occupied by people who are jostling for a better economic life, a purer (in their view) religious life, etc. There is huge turbulence.
And, people want to reduce the turbulence in their own lives (regulation).
But, aren't the excesses talked about in this article actually attempts to deal with the outside forces (competitors, strivers, etc.) who are - in the case of the economy and say the Chinese, trying to get a richer life with more goods and services than they enjoyed before. (Concomitantly, the Islamic terrorists are at the extreme of a religion that thinks it can tell the people of the world the theocratic control system they should live under - but that's another matter.)
So, if the world economy is full of turbulence because of jockeying interests, what would logically be the result of trying to damp this turbulence down?
a) On one hand, it might be that one could dampen down the jockeying. The Chinese would stay poor, the US would stay rich. There wouldn't be economic change. But, is this realistic? Even addressing global warming would have to stop.
b) Or, will attempts to contain the turbulence just build up a greater headwall of a storm surge that will then explode in an even more violent disruption?
c) Also, is the current situation a stable one to protect vis-a-vis (a); or, is it intrinsically unstable because there's too much debt and too much consumption and productive resources are being consumed and not replenished?
It would appear as though in the US is in (c) hoping for (a).
Look at the UK labor strikes over the holiday season. Labor thinks it can hold back the need to cut costs. Is this delusional, myopic, self-defeating or suicidal? An outside observer would think suicidal; but, etc., etc., etc."
Wednesday, December 16, 2009
Basic Course in Supply and Demand: Fed Needs to Tighten Money - WSJ.com
Fed Needs to Tighten Money - WSJ.com
Let's see... we have lots of slack in America's economy, lots of unemployment...but, police in Philadelphia are striking for more money and the Federal government is planning on pay increases for Federal employees...so, is anything more going to be produced?
No, of course not, we'll have more dollars (wages) chasing the same goods!
But, wait a minute, will we have the same amount of goods?
Let's see...taxes up, benefit costs up (even before we know interest rates will be going up), so the cost to make that car was $20,000 and now it will be $25,000. But wait, another economy just cut their costs (read: no new taxes, no new benefit programs, high savings rate, etc.), so they just cut the cost of their equivalent car to $18,000.
Hmmm, let's add this up. More government spending spurring demand. More government taxes and regulations raising costs of production. Actually less production in the US (and fewer US jobs). Hmmmm....hard not to see inflation and no jobs (oops, that's a depression or stagnation at best).
Let's see... we have lots of slack in America's economy, lots of unemployment...but, police in Philadelphia are striking for more money and the Federal government is planning on pay increases for Federal employees...so, is anything more going to be produced?
No, of course not, we'll have more dollars (wages) chasing the same goods!
But, wait a minute, will we have the same amount of goods?
Let's see...taxes up, benefit costs up (even before we know interest rates will be going up), so the cost to make that car was $20,000 and now it will be $25,000. But wait, another economy just cut their costs (read: no new taxes, no new benefit programs, high savings rate, etc.), so they just cut the cost of their equivalent car to $18,000.
Hmmm, let's add this up. More government spending spurring demand. More government taxes and regulations raising costs of production. Actually less production in the US (and fewer US jobs). Hmmmm....hard not to see inflation and no jobs (oops, that's a depression or stagnation at best).
Tuesday, December 15, 2009
Nostalgia for the Gold Standard Is Misplaced - Up and Down Wall Street Daily - R. Forsyth - Barrons.com
Nostalgia for the Gold Standard Is Misplaced - Up and Down Wall Street Daily - R. Forsyth - Barrons.com
Deflation vs. devaluation might have been one aspect; but, concomitant would have been the fact that suddenly - with import barriers - the effective cost of goods rose.
In other words, if the low cost producer (say China) today, wasn't allowed to sell the US imported goods (say tires); and, no other country could do so; then, let's assume the unions had their way and tires would now cost $100 vs. $10 (extreme example for purposes of illustration).
Now, assume wages don't go up; assume taxes on business go up; assume government benefit taxes go up (i.e. further raising the cost of domestic production and possibly depressing already flat wages).
Assume therefore that the society now has the same purchasing power but all costs of goods have gone up by a factor of 10. Locally, that is hyperinflation (or close to it).
If 100 people might have bought a tire for $10, maybe only 5 will buy one for $100. One can see where this leads...much less demand.
While this is an extreme case applied to the 1930's, the basic logic is also applicable today with current administration policies. As government is raising the costs for government programs attached to wages, it is driving up the costs of US production. Demand isn't being lessened by import restrictions impacting price; rather, the strongest impact may be on US employment.
How this plays out from here is clearly impacting markets as people guess which way the government will go to stimulate demand.
Deflation vs. devaluation might have been one aspect; but, concomitant would have been the fact that suddenly - with import barriers - the effective cost of goods rose.
In other words, if the low cost producer (say China) today, wasn't allowed to sell the US imported goods (say tires); and, no other country could do so; then, let's assume the unions had their way and tires would now cost $100 vs. $10 (extreme example for purposes of illustration).
Now, assume wages don't go up; assume taxes on business go up; assume government benefit taxes go up (i.e. further raising the cost of domestic production and possibly depressing already flat wages).
Assume therefore that the society now has the same purchasing power but all costs of goods have gone up by a factor of 10. Locally, that is hyperinflation (or close to it).
If 100 people might have bought a tire for $10, maybe only 5 will buy one for $100. One can see where this leads...much less demand.
While this is an extreme case applied to the 1930's, the basic logic is also applicable today with current administration policies. As government is raising the costs for government programs attached to wages, it is driving up the costs of US production. Demand isn't being lessened by import restrictions impacting price; rather, the strongest impact may be on US employment.
How this plays out from here is clearly impacting markets as people guess which way the government will go to stimulate demand.
Letters to the Editor: You Should Give Michigan a Break - WSJ.com
Letters to the Editor: You Should Give Michigan a Break - WSJ.com
What Mr. Gale is missing is that Michigan shouldn't be comparing itself to California, which has been equally hurting its economy with too high taxes.
The proper comparison should be with economic competitors (read: China, etc.).
In other words, if the US wants to have a competitive economy that can provide jobs, it will have to do what it takes to support and nurture those jobs. With respect to Michigan, it has had a long run of taxes that are so high they drive companies to other states (or countries).
As for unions, the UAW either didn't want to see or was blind to the fact that GM was underinvesting in the car business and wiped out its investors. Not exactly an approach to attract business or investment.
Right now, Washington is raising government salaries with roughly a fifth of the American workforce underemployed or unemployed or having given up on looking for a job. This kind of egregiously ridiculous waste of resources has to be considered in a global context.
Yes, some workers are getting more pay; but, to pay them, the government and the US are going into hock. And, what is the country getting for higher paid government employees? Yes, more spending power to buy more imported goods; but, no incentive to produce more domestically. In fact, just the opposite.
So, Michigan can try and defend its tax, spend and union-favoring policies; but, as it does so, nothing will change; and, if nothing changes, there won't be jobs coming back to Michigan unless something horrific happens to destroy its economic competitors.
What Mr. Gale is missing is that Michigan shouldn't be comparing itself to California, which has been equally hurting its economy with too high taxes.
The proper comparison should be with economic competitors (read: China, etc.).
In other words, if the US wants to have a competitive economy that can provide jobs, it will have to do what it takes to support and nurture those jobs. With respect to Michigan, it has had a long run of taxes that are so high they drive companies to other states (or countries).
As for unions, the UAW either didn't want to see or was blind to the fact that GM was underinvesting in the car business and wiped out its investors. Not exactly an approach to attract business or investment.
Right now, Washington is raising government salaries with roughly a fifth of the American workforce underemployed or unemployed or having given up on looking for a job. This kind of egregiously ridiculous waste of resources has to be considered in a global context.
Yes, some workers are getting more pay; but, to pay them, the government and the US are going into hock. And, what is the country getting for higher paid government employees? Yes, more spending power to buy more imported goods; but, no incentive to produce more domestically. In fact, just the opposite.
So, Michigan can try and defend its tax, spend and union-favoring policies; but, as it does so, nothing will change; and, if nothing changes, there won't be jobs coming back to Michigan unless something horrific happens to destroy its economic competitors.
The Choice Facing Democrats on Health - WSJ.com
The Choice Facing Democrats on Health - WSJ.com
An interesting fact in yesterday's WSJ was that Medicare costs have been rising at 9% per year (come what may with attempted cost controls).
Thus, an interesting consideration would be - if the healthcare tax employers will be paying is going to equal a 9% compounded annual increase, would I as the employer rather hire someone in the US or outside the US?
So, jobs here will be an issue.
And, if the 9% direct cost is compounded with additional cost shifting to support expanded 'free' coverage, will the cost to me as an employer not be even greater? My guess is every employer will have to figure yes.
So again, less incentive to take business risks (read: hire Americans).
Unfortunately, it would appear the Democrats are so far down the road of shrinking the private economy to pay for the public one, its only a question if its a final straw or not.
After all, with 20% under and unemployment, little or no inflation, etc. - why not give government employees a raise? At least that seems to be what we're seeing in the Democrats budget - even though they mouth concern about the rising deficit. So again, anti-job creation policies.
An interesting fact in yesterday's WSJ was that Medicare costs have been rising at 9% per year (come what may with attempted cost controls).
Thus, an interesting consideration would be - if the healthcare tax employers will be paying is going to equal a 9% compounded annual increase, would I as the employer rather hire someone in the US or outside the US?
So, jobs here will be an issue.
And, if the 9% direct cost is compounded with additional cost shifting to support expanded 'free' coverage, will the cost to me as an employer not be even greater? My guess is every employer will have to figure yes.
So again, less incentive to take business risks (read: hire Americans).
Unfortunately, it would appear the Democrats are so far down the road of shrinking the private economy to pay for the public one, its only a question if its a final straw or not.
After all, with 20% under and unemployment, little or no inflation, etc. - why not give government employees a raise? At least that seems to be what we're seeing in the Democrats budget - even though they mouth concern about the rising deficit. So again, anti-job creation policies.
Monday, December 14, 2009
Living in a Gray World - The 'Cost-Control' Health Care Illusion - WSJ.com
The 'Cost-Control' Health Care Illusion - WSJ.com
As this article attests, it would appear hard to believe the US can have a competitive economy (read: growing and with jobs), if more and more of it isn't subject to the inherent cost controls of economic utility purchasing decisions and supply and demand pricing decisions.
As such, those who want to work or produce know that a great deal of what they produce, save for, invest in, etc. is going to be enjoyed by those who the government is determined to reward with an equal outcome.
Now, there's a real incentive for working hard, studying, etc. I've seen the results of communism in Eastern Europe and talked with many people who lived through it. I really don't see that we aren't heading for the same conditions that communist economies operated under - i.e. little incentive for excellence and a stagnant at best economy. And, just like the Eastern Europeans in the late 1940's, Americans are voting to give up everything thinking all will be the same when the government controls the economy.
Well, it didn't work in Eastern Europe. Friends have called it "living in a gray world".
As this article attests, it would appear hard to believe the US can have a competitive economy (read: growing and with jobs), if more and more of it isn't subject to the inherent cost controls of economic utility purchasing decisions and supply and demand pricing decisions.
As such, those who want to work or produce know that a great deal of what they produce, save for, invest in, etc. is going to be enjoyed by those who the government is determined to reward with an equal outcome.
Now, there's a real incentive for working hard, studying, etc. I've seen the results of communism in Eastern Europe and talked with many people who lived through it. I really don't see that we aren't heading for the same conditions that communist economies operated under - i.e. little incentive for excellence and a stagnant at best economy. And, just like the Eastern Europeans in the late 1940's, Americans are voting to give up everything thinking all will be the same when the government controls the economy.
Well, it didn't work in Eastern Europe. Friends have called it "living in a gray world".
Sunday, December 13, 2009
Today's Washington: Headless and Heedless - Barrons.com
Today's Washington: Headless and Heedless - Barrons.com:
"All of the above points to the discontinuity one feels with respect to the idea that things are turning up and halcyon days are returning.
On one hand, there is the lassitude of Japan - where one doesn't have inflation, one has an expanding (ever expanding government deficit0, continuing high taxes, and apparently stagnant or at-least-not-expanding economy or government sector, a decline in savings, etc. - but no inflation and in fact deflation.
There are investment gurus who see this happening in the US.
Clearly, the US is continuing to allocate more and more resources to the government (state and federal) to hand out as social benefits and benefits to overpaid public employees - none of which increases production and all of which takes resources and incentive from the private economy.
Is it like starving a prize bull but still expecting performance and lots of new cows? Or, is the deprivation made up for (and going to be made up for) with money printing?"
"All of the above points to the discontinuity one feels with respect to the idea that things are turning up and halcyon days are returning.
On one hand, there is the lassitude of Japan - where one doesn't have inflation, one has an expanding (ever expanding government deficit0, continuing high taxes, and apparently stagnant or at-least-not-expanding economy or government sector, a decline in savings, etc. - but no inflation and in fact deflation.
There are investment gurus who see this happening in the US.
Clearly, the US is continuing to allocate more and more resources to the government (state and federal) to hand out as social benefits and benefits to overpaid public employees - none of which increases production and all of which takes resources and incentive from the private economy.
Is it like starving a prize bull but still expecting performance and lots of new cows? Or, is the deprivation made up for (and going to be made up for) with money printing?"
Stop Digging - Editorial Commentary - Thomas G. Donlan - Barrons.com
Stop Digging - Editorial Commentary - Thomas G. Donlan - Barrons.com
What's also missing (but implicit) in Donlan's comments is that young people entering the workforce today (as for many years now) don't have the same opportunities to accumulate the wealth for a nice house, good education for their children (read: college), etc. as their parents or parents' parents had a number of years ago.
While we do hear the lament about real wages, we don't hear anything (except by Donlan above) about how we're are taking too much wealth from the productive sector and giving it to government.
This money to government, in the form of taxes (direct and indirect) is transferring to government the individual's choice of benefits. If such choices are so beneficent, why aren't they voluntary - i.e. not through taxes?
But, of course, the answer is, these benefits are going to those 'underprivileged' members of society who can't afford them - i.e. the great leveling effect of democracy.
Here, as Donlan points out, the populism bodes ill for producers and, eventually, it will for those who consume without earning.
The only question, as evident in Barrons this week, is that people don't know.
What's also missing (but implicit) in Donlan's comments is that young people entering the workforce today (as for many years now) don't have the same opportunities to accumulate the wealth for a nice house, good education for their children (read: college), etc. as their parents or parents' parents had a number of years ago.
While we do hear the lament about real wages, we don't hear anything (except by Donlan above) about how we're are taking too much wealth from the productive sector and giving it to government.
This money to government, in the form of taxes (direct and indirect) is transferring to government the individual's choice of benefits. If such choices are so beneficent, why aren't they voluntary - i.e. not through taxes?
But, of course, the answer is, these benefits are going to those 'underprivileged' members of society who can't afford them - i.e. the great leveling effect of democracy.
Here, as Donlan points out, the populism bodes ill for producers and, eventually, it will for those who consume without earning.
The only question, as evident in Barrons this week, is that people don't know.
Saturday, December 12, 2009
Aren't We Really Seeing Basic Free Market Problems? What's in a Name? - Up and Down Wall Street - A. Abelson - Barrons.com
What's in a Name? - Up and Down Wall Street - A. Abelson - Barrons.com
Here it is early December 2009. Darling and Sarkozy have decided any extra tax, on fat banker cats especially, is a tax to love. Is the clear political and social anger at bank profits telling us something far more significant that what we are actually talking (or not talking) about?
Lest we forget the concept underlying the idea of a free market - when profits (say, at banks) get too great, then the great leveling effect of the market should encourage the entry of competitors (after all, lots of people without jobs, measly interest rates of almost nil, etc.)
But, one asks, where are these competitors? And, if not, why not?
None's to guess the answer, but meanwhile, where there's money, the government (and populace) appears to want to install putative extra taxes along with excoriation.
And, meanwhile, the developing world, that somehow never could gain the knack of how to develop (i.e. somehow the Chinese figured it out but not the Africans, etc.), so now those who still have a mite of credit left (i.e. the Europeans who are already borrowing to make ends meet) are finding themselves going into further hock for developing countries who seem to have one more excuse (global warming) as their hindrance to make it on their own.
So, where or where will all of this lead?????? Well, right now it has already led to substantial unemployment (10% plus) and underemployment (approaching 20%)in the US.
We should be asking ourselves why individuals and businesses don't want to put money at risk and invest in job creation and the hope for profits.
But, we're not really asking this question because the answer may well lie in government's attempt to control outcomes, redistribute too much wealth and pull back on the rewards and incentives to take risks and make a better life.
Here it is early December 2009. Darling and Sarkozy have decided any extra tax, on fat banker cats especially, is a tax to love. Is the clear political and social anger at bank profits telling us something far more significant that what we are actually talking (or not talking) about?
Lest we forget the concept underlying the idea of a free market - when profits (say, at banks) get too great, then the great leveling effect of the market should encourage the entry of competitors (after all, lots of people without jobs, measly interest rates of almost nil, etc.)
But, one asks, where are these competitors? And, if not, why not?
None's to guess the answer, but meanwhile, where there's money, the government (and populace) appears to want to install putative extra taxes along with excoriation.
And, meanwhile, the developing world, that somehow never could gain the knack of how to develop (i.e. somehow the Chinese figured it out but not the Africans, etc.), so now those who still have a mite of credit left (i.e. the Europeans who are already borrowing to make ends meet) are finding themselves going into further hock for developing countries who seem to have one more excuse (global warming) as their hindrance to make it on their own.
So, where or where will all of this lead?????? Well, right now it has already led to substantial unemployment (10% plus) and underemployment (approaching 20%)in the US.
We should be asking ourselves why individuals and businesses don't want to put money at risk and invest in job creation and the hope for profits.
But, we're not really asking this question because the answer may well lie in government's attempt to control outcomes, redistribute too much wealth and pull back on the rewards and incentives to take risks and make a better life.
Thursday, December 10, 2009
WSJ.com Economic Forecasting Survey: Most Economists Urge Action on Jobs - WSJ.com
WSJ.com Economic Forecasting Survey: Most Economists Urge Action on Jobs - WSJ.com
Let's see? Past history shows that when government spends more than about 19% of GDP, the economy doesn't do too well.
Now we have 25% and with healthcare, climate bills, etc. - the cost to the economy will be even higher.
So what does 25% mean vs 19%?
To start, lets say you want to start a business: so at 19% you'd have more money left in your pocket after taxes. (And, with Obamanomics, that increase in money to the Feds will be coming out of business peoples pocket).
Next, one might ask what the extra Federal money is being used for? Well, state and federal workers now are getting better retirement checks and bigger retirement benefits, etc. So - the economy isn't producing more (in fact less), but these favored members of society are going to be getting more. So, someone has to be getting less!
And, you guessed it - that means you as the employer and your employees (since they are in the private sector).
Now, as part of interest rates - for the money you borrow - you already know the answer. The government has first dibs on money - so, if you can get any, your interest rate will be higher, etc.
Now, based on just the above - excluding more facts and details - is there any question as to what should be done to stimulate the private sector? (Can we start with less government, less transfer payments, more get what you earn, etc.)!
Let's see? Past history shows that when government spends more than about 19% of GDP, the economy doesn't do too well.
Now we have 25% and with healthcare, climate bills, etc. - the cost to the economy will be even higher.
So what does 25% mean vs 19%?
To start, lets say you want to start a business: so at 19% you'd have more money left in your pocket after taxes. (And, with Obamanomics, that increase in money to the Feds will be coming out of business peoples pocket).
Next, one might ask what the extra Federal money is being used for? Well, state and federal workers now are getting better retirement checks and bigger retirement benefits, etc. So - the economy isn't producing more (in fact less), but these favored members of society are going to be getting more. So, someone has to be getting less!
And, you guessed it - that means you as the employer and your employees (since they are in the private sector).
Now, as part of interest rates - for the money you borrow - you already know the answer. The government has first dibs on money - so, if you can get any, your interest rate will be higher, etc.
Now, based on just the above - excluding more facts and details - is there any question as to what should be done to stimulate the private sector? (Can we start with less government, less transfer payments, more get what you earn, etc.)!
The Public's New Fear of Finance - WSJ.com
The Public's New Fear of Finance - WSJ.com:
"However, the real 'neighbor test' should be with politicians (who are promising people things they know can't be paid for) and unions (who defend their rights, while again demanding benefits that destroy businesses (GM and the UAW) or don't care that they aren't educating children (teachers unions)).
Something is wrong in the basic economy. No one wants to tell people that society can't afford to let you work for 30 years and retire for 40 with almost an equivalent income and in fact lower costs for healthcare.
When people can't somehow get out of high school and get a job that affords them a 3 bedroom, 2 bath house, 2 cars and a boat - with the above retirement - they feel cheated.
Well, it's easier to blame the bankers; but, they are also the ones doing their best to keep the economic boat as afloat as possible. With good salaries, they encourage the best and the brightest to work there.
Something is wrong with the economy; but, as long as we let people believe its the banks, then the real culprits are getting off scotfree; and, the problems aren't being solved.
(A UK example is Darling's promise of a 2.5% nominal, 4% real increase in income subsidies at the same time as the UK government budget needs to be cut - i.e. we can't ask people to face the facts that the economy can't afford some things."
"However, the real 'neighbor test' should be with politicians (who are promising people things they know can't be paid for) and unions (who defend their rights, while again demanding benefits that destroy businesses (GM and the UAW) or don't care that they aren't educating children (teachers unions)).
Something is wrong in the basic economy. No one wants to tell people that society can't afford to let you work for 30 years and retire for 40 with almost an equivalent income and in fact lower costs for healthcare.
When people can't somehow get out of high school and get a job that affords them a 3 bedroom, 2 bath house, 2 cars and a boat - with the above retirement - they feel cheated.
Well, it's easier to blame the bankers; but, they are also the ones doing their best to keep the economic boat as afloat as possible. With good salaries, they encourage the best and the brightest to work there.
Something is wrong with the economy; but, as long as we let people believe its the banks, then the real culprits are getting off scotfree; and, the problems aren't being solved.
(A UK example is Darling's promise of a 2.5% nominal, 4% real increase in income subsidies at the same time as the UK government budget needs to be cut - i.e. we can't ask people to face the facts that the economy can't afford some things."
Wednesday, December 9, 2009
What Really Hurts Job Creation? Heritage Employment Report: Thanks for the November Jobs Report? - WSJ.com
Heritage Employment Report: Thanks for the November Jobs Report? - WSJ.com
Why do people always look for extraneous excuses.
People are hired, business expands, etc. when business can make a profit, investors can get paid back with interest or capital gains or income, etc.
But, if government comes along and takes too much of what business can pay the worker (the worker is unhappy) and, if the cost gets too high, the worker can't be hired and the business either closes down or moves elsewhere.
Unions and government seem to think they can drive up benefit costs and income transfers with no consequences. Well, there are consequences and we're seeing it in a lack of job creation (and job loss).
Americans should blame their government and unions for distorting the market for labor and reducing the rewards for capital and ideas.
Right now China is working to become the global leader in green energy. It doesn't have a lot of the pluses the US has; but, it has a much cleaner market for labor costs and rewards to capital.
What Americans who would like jobs should be doing is complaining about the distortions to these inputs from government (both State and Federal). But, rather than improve the groundwork for job creation, government is increasing the market distortions.
Don't blame free trade, blame government for denying Americans the chance to compete.
Why do people always look for extraneous excuses.
People are hired, business expands, etc. when business can make a profit, investors can get paid back with interest or capital gains or income, etc.
But, if government comes along and takes too much of what business can pay the worker (the worker is unhappy) and, if the cost gets too high, the worker can't be hired and the business either closes down or moves elsewhere.
Unions and government seem to think they can drive up benefit costs and income transfers with no consequences. Well, there are consequences and we're seeing it in a lack of job creation (and job loss).
Americans should blame their government and unions for distorting the market for labor and reducing the rewards for capital and ideas.
Right now China is working to become the global leader in green energy. It doesn't have a lot of the pluses the US has; but, it has a much cleaner market for labor costs and rewards to capital.
What Americans who would like jobs should be doing is complaining about the distortions to these inputs from government (both State and Federal). But, rather than improve the groundwork for job creation, government is increasing the market distortions.
Don't blame free trade, blame government for denying Americans the chance to compete.
Tuesday, December 8, 2009
Cameron: Cutting Spending too Quickly Could Hurt Recovery - WSJ.com
Cameron: Cutting Spending too Quickly Could Hurt Recovery - WSJ.com
Watching the various commentators speak about an inability to spend overspending by government is like the family with reduced income just maintaining their lifestyle by relying on their credit cards - i.e. they are going into greater debt to obviate the need to cut spending.
My view of what's really going on with the economy is that government is taking too much from workers and entrepreneurs to redistribute funds that actually need to be reinvested and used to incentivize economic growth.
Thus, while government argues that growth will return and then they can cut back on the deficit, it may be that growth won't return (i.e. the government's tax policies are anti-growth and there's real competition out there that is pro-growth (read: China, etc.)), so they are like the family whose credit card largess will only have a bankruptcy option.
Ask what is really going on? Isn't government trying to continue offering non or low producers benefits they can't afford by taking wealth from the rest of society?
The appearance of affluence through added debt can be very deceptive and delusional. Is this what's going on?
Clearly, objective evidence would suggest this is the case.
Watching the various commentators speak about an inability to spend overspending by government is like the family with reduced income just maintaining their lifestyle by relying on their credit cards - i.e. they are going into greater debt to obviate the need to cut spending.
My view of what's really going on with the economy is that government is taking too much from workers and entrepreneurs to redistribute funds that actually need to be reinvested and used to incentivize economic growth.
Thus, while government argues that growth will return and then they can cut back on the deficit, it may be that growth won't return (i.e. the government's tax policies are anti-growth and there's real competition out there that is pro-growth (read: China, etc.)), so they are like the family whose credit card largess will only have a bankruptcy option.
Ask what is really going on? Isn't government trying to continue offering non or low producers benefits they can't afford by taking wealth from the rest of society?
The appearance of affluence through added debt can be very deceptive and delusional. Is this what's going on?
Clearly, objective evidence would suggest this is the case.
William McGurn: My Big Fat Government Takeover - WSJ.com
William McGurn: My Big Fat Government Takeover - WSJ.com: "
Sadly, the religious right that makes up a commanding part of the Republican Party has the same sense of commanding rectitude that the Democrats on the left have.
Admittedly, the religious right looks to a 'higher power' perhaps than the Democrats, but that higher power (which they call their god) is no less questionable in terms of applying their view of divine demands than the Democrats.
If the Republicans want to offer a real alternative, they should admit that their view of god (or gods) may not be everyone's'; and, since the Constitution supports the ideal of religious freedom, maybe the Republicans could leave their god ideas out of politics and worry about individual rights and a market economy.
An interesting take on religion is the following:
http://www.youtube.com/watch?v=RNy6ziOyxoA&feature=player_embedded"
Sadly, the religious right that makes up a commanding part of the Republican Party has the same sense of commanding rectitude that the Democrats on the left have.
Admittedly, the religious right looks to a 'higher power' perhaps than the Democrats, but that higher power (which they call their god) is no less questionable in terms of applying their view of divine demands than the Democrats.
If the Republicans want to offer a real alternative, they should admit that their view of god (or gods) may not be everyone's'; and, since the Constitution supports the ideal of religious freedom, maybe the Republicans could leave their god ideas out of politics and worry about individual rights and a market economy.
An interesting take on religion is the following:
http://www.youtube.com/watch?v=RNy6ziOyxoA&feature=player_embedded"
Less Growth - More Government: Letters to the Editor: What Kind of Growth Is Sought? - WSJ.com
Letters to the Editor: What Kind of Growth Is Sought? - WSJ.com
Sadly, you appear to be right on! It's doubtful Obama's policies will produce real growth.
One might add that the other conundrum of the US, Japan and Europe (but not countries like China) is that they take so much of what the worker could earn to support government that the economy isn't really self-sustaining.
The US obfuscated this with the internet and home price bubbles (as did the UK) with large expansions of debt.
Now that bill is coming due.
People somehow prefer to work and get fairly paid for what they do. But, when government decides the worker is either too stupid, uninformed or greedy to deserve to make income allocation decisions on their own, the slow creep of stagnation creeps in. Japan is seeing deflation now. The US can see what happens to such policies at the state level by looking at Michigan, which saw its strong economy slaughtered by myopic union greed and high taxes.
So, we have the Democrats hoping against hope that history doesn't repeat itself and that misdirection will win the day and they can take even more from workers and yet the economy will revive?
History has shown that the economy often does revive (lower taxes have often helped), but history and recent experience (Michigan, etc., the 30's depression) also show that the economy may continue to stumble. To some it's an open guess each way; to others, it's only a question of time and unforeseen events that could turn things around in a positive direction for growth instead of stagnation/depression/inflation.
Sadly, you appear to be right on! It's doubtful Obama's policies will produce real growth.
One might add that the other conundrum of the US, Japan and Europe (but not countries like China) is that they take so much of what the worker could earn to support government that the economy isn't really self-sustaining.
The US obfuscated this with the internet and home price bubbles (as did the UK) with large expansions of debt.
Now that bill is coming due.
People somehow prefer to work and get fairly paid for what they do. But, when government decides the worker is either too stupid, uninformed or greedy to deserve to make income allocation decisions on their own, the slow creep of stagnation creeps in. Japan is seeing deflation now. The US can see what happens to such policies at the state level by looking at Michigan, which saw its strong economy slaughtered by myopic union greed and high taxes.
So, we have the Democrats hoping against hope that history doesn't repeat itself and that misdirection will win the day and they can take even more from workers and yet the economy will revive?
History has shown that the economy often does revive (lower taxes have often helped), but history and recent experience (Michigan, etc., the 30's depression) also show that the economy may continue to stumble. To some it's an open guess each way; to others, it's only a question of time and unforeseen events that could turn things around in a positive direction for growth instead of stagnation/depression/inflation.
Sunday, December 6, 2009
The New Math - December's Rehearsal for 2010 - The Trader - Kopin Tan - Barrons.com
December's Rehearsal for 2010 - The Trader - Kopin Tan - Barrons.com:
"Somehow all the favorable math seems to forget about basic addition and subtraction.
In other words, if the government takes (i.e. subtraction), then how do we get addition?
Workers and entrepreneurs are to have less. More is to go to those who can't afford or deign not to afford the benefits government believes should be bestowed. How does this encourage an economic rebound?
If I work harder or as hard as I've been working, the government is going to take more of what I produce and give it those who aren't producing. And, somehow this is going to make the economy better?
As evidenced by the gambler who lost $127 million to the casinos, while he was gambling, the casinos were doing well. Now that he's gone????
So, with the government running up its deficits, are we really making the economy better or more productive?"
"Somehow all the favorable math seems to forget about basic addition and subtraction.
In other words, if the government takes (i.e. subtraction), then how do we get addition?
Workers and entrepreneurs are to have less. More is to go to those who can't afford or deign not to afford the benefits government believes should be bestowed. How does this encourage an economic rebound?
If I work harder or as hard as I've been working, the government is going to take more of what I produce and give it those who aren't producing. And, somehow this is going to make the economy better?
As evidenced by the gambler who lost $127 million to the casinos, while he was gambling, the casinos were doing well. Now that he's gone????
So, with the government running up its deficits, are we really making the economy better or more productive?"
To See and To Be Seen - The Roots of the Crisis - Barrons.com
The Roots of the Crisis - Barrons.com
Right now, with the unemployment statistics seemingly so positive, it appears as though it doesn't matter that we take labor's rewards and transfer them to government and let government dole them out without an discretion to any who lack - but, is this going to be either sustainable or positive?
On one hand we have aspiring Asian cultures where rewards are both jobs and riches.
At the same time, the US and particularly the UK, both of which have large parts of their populations clamoring for a continuation and embellishment of existing entitlements, talk about taking more from those who are successful in the competition for production across the world.
It's hard to believe that the US and UK can prosper by encouraging added benefits to non-producers or low producers, while they have competition from countries where the producers get to keep more and have more to reinvest?
As with every other set of delusional beliefs, this one would also seem to be one that could only end badly.
Right now, with the unemployment statistics seemingly so positive, it appears as though it doesn't matter that we take labor's rewards and transfer them to government and let government dole them out without an discretion to any who lack - but, is this going to be either sustainable or positive?
On one hand we have aspiring Asian cultures where rewards are both jobs and riches.
At the same time, the US and particularly the UK, both of which have large parts of their populations clamoring for a continuation and embellishment of existing entitlements, talk about taking more from those who are successful in the competition for production across the world.
It's hard to believe that the US and UK can prosper by encouraging added benefits to non-producers or low producers, while they have competition from countries where the producers get to keep more and have more to reinvest?
As with every other set of delusional beliefs, this one would also seem to be one that could only end badly.
Saturday, December 5, 2009
Obama Promises Job Creation Ideas - WSJ.com
Obama Promises Job Creation Ideas - WSJ.com
Let's see. In terms of employment, there are the fixed costs (like the health insurance we have to pay for a worker) and variable costs. If we can up the fixed costs (health care bill) and keep up the high taxes (indirect costs) that we know the worker SHOULD have but MIGHT NOT pay for if given a choice, then we can RAISE THE AVERAGE COST of labor to that of a UAW worker (older worker!).
Hmmm, maybe we can get everyone to be employed at UAW salaries and benefits?
Ooops, the companies seem to be hiring workers outside of the US.
Ooops, the small businesses are closing down.
Ooops, the banks seem to think small business won't be able to pay them back.
Ahhhh shucks, lets just raise the taxes on the business guys (and gals) - especially the sole entrepreneurs.
Ooops, they don't seem to be investing in their businesses. Why aren't there any small business jobs?
Well, we can't cut back on social benefits, so let's keep the corporate tax where it is.
Ooops, some corporations seem to be transferring work overseas.
Well, we'll stop that. We'll make them only hire Americans (citizens that is).
Ooops, a lot of R&D work is being booked outside the country where it's easier to bring together foreigners.
on and on and on.
Clearly Democrats know better than workers in terms of how to spend the money that workers COULD earn. (Just like the Republicans know how to determine everyone's moral standards - a bit better than 400 years of the Spanish inquisition - but, is it really?)
Would you really rather have Nancy Pelosi take money out of your paycheck and determine what to do with it? Or, the Republicans tell you how their god thinks you should behave?
HELP!
Let's see. In terms of employment, there are the fixed costs (like the health insurance we have to pay for a worker) and variable costs. If we can up the fixed costs (health care bill) and keep up the high taxes (indirect costs) that we know the worker SHOULD have but MIGHT NOT pay for if given a choice, then we can RAISE THE AVERAGE COST of labor to that of a UAW worker (older worker!).
Hmmm, maybe we can get everyone to be employed at UAW salaries and benefits?
Ooops, the companies seem to be hiring workers outside of the US.
Ooops, the small businesses are closing down.
Ooops, the banks seem to think small business won't be able to pay them back.
Ahhhh shucks, lets just raise the taxes on the business guys (and gals) - especially the sole entrepreneurs.
Ooops, they don't seem to be investing in their businesses. Why aren't there any small business jobs?
Well, we can't cut back on social benefits, so let's keep the corporate tax where it is.
Ooops, some corporations seem to be transferring work overseas.
Well, we'll stop that. We'll make them only hire Americans (citizens that is).
Ooops, a lot of R&D work is being booked outside the country where it's easier to bring together foreigners.
on and on and on.
Clearly Democrats know better than workers in terms of how to spend the money that workers COULD earn. (Just like the Republicans know how to determine everyone's moral standards - a bit better than 400 years of the Spanish inquisition - but, is it really?)
Would you really rather have Nancy Pelosi take money out of your paycheck and determine what to do with it? Or, the Republicans tell you how their god thinks you should behave?
HELP!
Trading Tax -- a Bad Idea Whose Time May Have Come - Up and Down Wall Street Daily - R. Forsyth - Barrons.com
Trading Tax -- a Bad Idea Whose Time May Have Come - Up and Down Wall Street Daily - R. Forsyth - Barrons.com:
"Another thought on the trading tax is sort of like the person who'd like to put a few more dollars in the tithing tray at their local, socially-conscious, distribute to the poor religious edifice.
Sadly, they've used up all the money had from their own pockets and the minor thievery, so now they have to find new pockets to pick.
It's not as though they might ask the populace to pay for the benefits they are so kindly bestowing. Because, frankly, the populace can't afford them. So, why not take it from their employers and their bankers.
Not to ask whether it will make it harder on the employers to make a profit or to keep their costs of capital down - but, heck, we can probably get the Europeans to go a long at least. They always have an extra social care expense they'd like to tax for.
But golly gee - if it isn't those free-market communists in Asia. They just don't get it. They should be taxing their businesses and we should make them have to give away the kind of benefits our masses clamor for.
Well, will they or won't they?????
Meanwhile, let's go see what bargains they have at Walmart!"
"Another thought on the trading tax is sort of like the person who'd like to put a few more dollars in the tithing tray at their local, socially-conscious, distribute to the poor religious edifice.
Sadly, they've used up all the money had from their own pockets and the minor thievery, so now they have to find new pockets to pick.
It's not as though they might ask the populace to pay for the benefits they are so kindly bestowing. Because, frankly, the populace can't afford them. So, why not take it from their employers and their bankers.
Not to ask whether it will make it harder on the employers to make a profit or to keep their costs of capital down - but, heck, we can probably get the Europeans to go a long at least. They always have an extra social care expense they'd like to tax for.
But golly gee - if it isn't those free-market communists in Asia. They just don't get it. They should be taxing their businesses and we should make them have to give away the kind of benefits our masses clamor for.
Well, will they or won't they?????
Meanwhile, let's go see what bargains they have at Walmart!"
Friday, December 4, 2009
Teeter-Totter? - David Malpass: The Fed's Zero-Rate Policy Is Hurting the Economy - WSJ.com
David Malpass: The Fed's Zero-Rate Policy Is Hurting the Economy - WSJ.com
What Malpass is very right on is that dollars are fleeing the United States.
The Democrats are religious in their orthodoxy of promoting government as the provider of all things good - i.e. retirement, health care, welfare, etc.
The Obama jobs summit confirmed the above. There was nothing that I heard about making America a better (i.e. freer and lower cost) place to do business.
Why we ignore what Democratic policies bring about - just look at Michigan and California - is beyond me.
Malpass is also right, but doesn't go far enough in pointing out that businesses, just like every investor, look for the highest or relatively higher rate of return, based on risk.
He appropriately points out how the Fed is pushing on the economic string with zero interest rates; but, as Bernanke testified yesterday, the Fed wants to stay out of fiscal policy comments. And, it is fiscal policy that is wreaking the havoc - Democratic fiscal policy!
Malpas also appropriately highlights that the dollars fleeing the US for better returns are sucking the money out of US to earn better returns abroad and the money isn't there for small businesses to borrow. What he should add is that the returns small business can earn are either too low or likely will be too low with all the taxes and additions to labor costs that the Democrats are planning and will have to plan.
Not enough people are blaming the Democrats for the economic conditions being wrought. Just take a look at Venezuela. It luckily has oil to export; but, it has roughly 30% inflation at last count and can't feed itself. But, the socialist free lunch is still in full force.
I hope the US isn't on the teeter-totter that it appears to be on and the change in position when it comes, will come quickly.
But, it would seem like basic logic and common sense. You take from a few to give to more than a few and the few feel less inclined to work! Of course, to a Democrat, the average guy or gal just keeps working away - even though they get to keep less and less.
As Malpass points out, even it they want to keep working, the people with the money know it doesn't make any sense so they're moving their funds someplace safer.
Maybe it's crazy to think that people put their own self-interest first - but, my guess is that it's true not only of those clamoring for more government services at even lower prices; but also those who are being asked to pay for providing those services to other people.
What Malpass is very right on is that dollars are fleeing the United States.
The Democrats are religious in their orthodoxy of promoting government as the provider of all things good - i.e. retirement, health care, welfare, etc.
The Obama jobs summit confirmed the above. There was nothing that I heard about making America a better (i.e. freer and lower cost) place to do business.
Why we ignore what Democratic policies bring about - just look at Michigan and California - is beyond me.
Malpass is also right, but doesn't go far enough in pointing out that businesses, just like every investor, look for the highest or relatively higher rate of return, based on risk.
He appropriately points out how the Fed is pushing on the economic string with zero interest rates; but, as Bernanke testified yesterday, the Fed wants to stay out of fiscal policy comments. And, it is fiscal policy that is wreaking the havoc - Democratic fiscal policy!
Malpas also appropriately highlights that the dollars fleeing the US for better returns are sucking the money out of US to earn better returns abroad and the money isn't there for small businesses to borrow. What he should add is that the returns small business can earn are either too low or likely will be too low with all the taxes and additions to labor costs that the Democrats are planning and will have to plan.
Not enough people are blaming the Democrats for the economic conditions being wrought. Just take a look at Venezuela. It luckily has oil to export; but, it has roughly 30% inflation at last count and can't feed itself. But, the socialist free lunch is still in full force.
I hope the US isn't on the teeter-totter that it appears to be on and the change in position when it comes, will come quickly.
But, it would seem like basic logic and common sense. You take from a few to give to more than a few and the few feel less inclined to work! Of course, to a Democrat, the average guy or gal just keeps working away - even though they get to keep less and less.
As Malpass points out, even it they want to keep working, the people with the money know it doesn't make any sense so they're moving their funds someplace safer.
Maybe it's crazy to think that people put their own self-interest first - but, my guess is that it's true not only of those clamoring for more government services at even lower prices; but also those who are being asked to pay for providing those services to other people.
Wednesday, December 2, 2009
Stocks Flat After ADP Report - WSJ.com
Stocks Flat After ADP Report - WSJ.com
While the US economy has yet to fully metastasize into that of the State of Michigan, it shouldn't be a surprise to see the progress of the economic disease that keeps tax revenues and jobs shrinking.
After all, the Administration and Congress show every sign of spending, taxing and unionizing with no thought of the consequences as presented by the State of Michigan.
As with the progress of any such disease, the outcome is known, but the progress of the disease is a question.
It would be nice to see attempts at more than palliative cures.
While the US economy has yet to fully metastasize into that of the State of Michigan, it shouldn't be a surprise to see the progress of the economic disease that keeps tax revenues and jobs shrinking.
After all, the Administration and Congress show every sign of spending, taxing and unionizing with no thought of the consequences as presented by the State of Michigan.
As with the progress of any such disease, the outcome is known, but the progress of the disease is a question.
It would be nice to see attempts at more than palliative cures.
Applied Industrial CEO Sees Little Evidence Of Recovery - WSJ.com
Economic Utility Analysis: Applied Industrial CEO Sees Little Evidence Of Recovery - WSJ.com
Think about the concept of "economic utility" and how it drives consumer choices and spending.
Think especially about these issues after the cost and pricing components have been subjected to interference by the government - which is exactly what is happening through government actions like the healthcare bill and higher taxes.
What is the result? The cost of producing services goes up; but, the pricing mechanism that would normally temper demand doesn't work. In fact, as in the healthcare approach of the administration, it works in reverse. It actually lowers the 'direct' cost of healthcare (thus increasing demand) by making it an indirect cost (tax-based).
And, as such, it takes money from things like housing, education, retirement, extra hours of work - that would normally have a higher utility function; and, it replaces them with a lower utility based on having less money to spend on them and, in some cases, taxes to boost their cost.
As a result, the overall productive equation of society goes down. Is it an exponential function? Likely it is.
Think about the concept of "economic utility" and how it drives consumer choices and spending.
Think especially about these issues after the cost and pricing components have been subjected to interference by the government - which is exactly what is happening through government actions like the healthcare bill and higher taxes.
What is the result? The cost of producing services goes up; but, the pricing mechanism that would normally temper demand doesn't work. In fact, as in the healthcare approach of the administration, it works in reverse. It actually lowers the 'direct' cost of healthcare (thus increasing demand) by making it an indirect cost (tax-based).
And, as such, it takes money from things like housing, education, retirement, extra hours of work - that would normally have a higher utility function; and, it replaces them with a lower utility based on having less money to spend on them and, in some cases, taxes to boost their cost.
As a result, the overall productive equation of society goes down. Is it an exponential function? Likely it is.
Michigan Bleeds Jobs Because of High Taxes - WSJ.com
Michigan Bleeds Jobs Because of High Taxes - WSJ.com:
"What should be of concern to all Americans is that the Michigan/UAW model is the Administration and Congress' model for the country.
As with the UAW, they like all the benefits while the money and jobs are there, there is just an utter blindness as to what keeps the money and the jobs there; so, witness the record price of gold.
It's a version of the tale of the goose that lays the golden eggs. Rather than outright killing the goose, the unions and administration are taking the golden eggs plus a lot of the goose's feed. They don't understand why there isn't an egg everyday. They don't understand why the unemployment rate is going up, credit isn't flowing (although they make loud lamentations and blame the banks) and venture capital funding is being pulled."
"What should be of concern to all Americans is that the Michigan/UAW model is the Administration and Congress' model for the country.
As with the UAW, they like all the benefits while the money and jobs are there, there is just an utter blindness as to what keeps the money and the jobs there; so, witness the record price of gold.
It's a version of the tale of the goose that lays the golden eggs. Rather than outright killing the goose, the unions and administration are taking the golden eggs plus a lot of the goose's feed. They don't understand why there isn't an egg everyday. They don't understand why the unemployment rate is going up, credit isn't flowing (although they make loud lamentations and blame the banks) and venture capital funding is being pulled."
Tuesday, December 1, 2009
Systemic Risk and Fannie Mae - WSJ.com
Systemic Risk and Fannie Mae - WSJ.com
An excellent article.
Too bad the folks in Washington today have another agenda that is only exacerbating the risks to the economy.
From the comments in the Wall Street Journal, it would also appear that many readers believe the bankers rather than the government to be at fault with today's shifting of business and jobs outside of the US.
They should look at articles such as that in today's paper where Pittsburgh wants to put a tax on college tuition to support the generous benefits wrung from the city by its unions. There is nothing there that sees anything wrong with the benefits agreed to - in the same way the UAW saw nothing wrong with riding GM to the rail with traditional union demands and work rules even though the company was clearly hemorrhaging last winter and living on a government loan.
As we used to learn in school, before you can solve a problem, it has to be identified. As with the lack of identifying a problem with Fannie and Freddie by eminent economists and Congress, so today it would appear that people want to lament a loss of jobs but prefer to ignore and are afraid to ask serious questions of causality.
An excellent article.
Too bad the folks in Washington today have another agenda that is only exacerbating the risks to the economy.
From the comments in the Wall Street Journal, it would also appear that many readers believe the bankers rather than the government to be at fault with today's shifting of business and jobs outside of the US.
They should look at articles such as that in today's paper where Pittsburgh wants to put a tax on college tuition to support the generous benefits wrung from the city by its unions. There is nothing there that sees anything wrong with the benefits agreed to - in the same way the UAW saw nothing wrong with riding GM to the rail with traditional union demands and work rules even though the company was clearly hemorrhaging last winter and living on a government loan.
As we used to learn in school, before you can solve a problem, it has to be identified. As with the lack of identifying a problem with Fannie and Freddie by eminent economists and Congress, so today it would appear that people want to lament a loss of jobs but prefer to ignore and are afraid to ask serious questions of causality.
Steelmakers Downsize Once Again - WSJ.com
Steelmakers Downsize Once Again - WSJ.com
Let's talk about jobs and salaries and why the US worker is unhappy with their pay and why the jobs aren't staying in the US. It's not a pretty picture - but too many people would rather not consider some basic facts.
This is the lesson many in the US don't want to hear about. They reject it outright - almost like someone religiously motivated being told there is no god!
But, it would be better if people would listen and politicians would pay attention and make some changes.
But, is this likely - clearly not at the moment. The US is going in exactly the opposite direction.
What is at play here? Part of it is making the US an attractive place to do business. This includes a favorable immigration policy, trade policy, lower taxes, lower employment costs (particularly benefits), etc. To sum up, this would encompass making the US a country that out-and-out wants to compete with the rest of the world and will make changes in how it does business to make this happen.
Right now, the US and many Americans take exactly the opposite tack. They want to blame other countries and they don't want to give up anything. Rather, they want more benefits (see Healthcare bill).
A big consideration is wrapped up in the capital required to produce a job that in a global economy has a certain gross productive earning power. What does this mean?
Let's say a company can earn $1,000,000 in profit and has 10 employees. This would mean the gross productive earning power is roughly $100,000 per worker. Let's assume this million dollars is after all capital costs are paid, etc.
So, let's assume the business can allocate this full million to salaries and benefits.
Now let's assume the company has to pay all of the social security, retirement, healthcare and other costs out of this money. People have told me this is often 3 to 4 times the actual gross salary the company can pay the employee.
If it was four times, then if a worker was paid $20,000 as a gross salary, 4 times this salary would be $80,000 and the total would take up the $100,000.
Now, from the $20,000 the worker would be paying social security, etc. plus taxes. So, the worker might only take home $15,000 in net pay.
If the US wants to have workers paid more, then it needs to cut down on the $80,000 plus in costs that the worker doesn't get to decide on spending for themselves - rather, government has decided!
Now compare this with a country where for the same salary ($20,000) and gross earnings to pay to salaries ($1 million), the burden is only 2 times. How many added workers could their be?
Or, if the burden was only 2 times and the salary was the same, how much less earnings would be required.
On and on one can go with these examples.
However, the US doesn't want to make any changes so its is being forced upon it with companies relocating production in order to compete. There is also less employment in the US and the capital to make changes is being bled off in social benefits and jobs and production lost.
It would be nice if current policies had any hope of turning this around. Instead, they seem to be accelerating the loss of jobs.
Let's talk about jobs and salaries and why the US worker is unhappy with their pay and why the jobs aren't staying in the US. It's not a pretty picture - but too many people would rather not consider some basic facts.
This is the lesson many in the US don't want to hear about. They reject it outright - almost like someone religiously motivated being told there is no god!
But, it would be better if people would listen and politicians would pay attention and make some changes.
But, is this likely - clearly not at the moment. The US is going in exactly the opposite direction.
What is at play here? Part of it is making the US an attractive place to do business. This includes a favorable immigration policy, trade policy, lower taxes, lower employment costs (particularly benefits), etc. To sum up, this would encompass making the US a country that out-and-out wants to compete with the rest of the world and will make changes in how it does business to make this happen.
Right now, the US and many Americans take exactly the opposite tack. They want to blame other countries and they don't want to give up anything. Rather, they want more benefits (see Healthcare bill).
A big consideration is wrapped up in the capital required to produce a job that in a global economy has a certain gross productive earning power. What does this mean?
Let's say a company can earn $1,000,000 in profit and has 10 employees. This would mean the gross productive earning power is roughly $100,000 per worker. Let's assume this million dollars is after all capital costs are paid, etc.
So, let's assume the business can allocate this full million to salaries and benefits.
Now let's assume the company has to pay all of the social security, retirement, healthcare and other costs out of this money. People have told me this is often 3 to 4 times the actual gross salary the company can pay the employee.
If it was four times, then if a worker was paid $20,000 as a gross salary, 4 times this salary would be $80,000 and the total would take up the $100,000.
Now, from the $20,000 the worker would be paying social security, etc. plus taxes. So, the worker might only take home $15,000 in net pay.
If the US wants to have workers paid more, then it needs to cut down on the $80,000 plus in costs that the worker doesn't get to decide on spending for themselves - rather, government has decided!
Now compare this with a country where for the same salary ($20,000) and gross earnings to pay to salaries ($1 million), the burden is only 2 times. How many added workers could their be?
Or, if the burden was only 2 times and the salary was the same, how much less earnings would be required.
On and on one can go with these examples.
However, the US doesn't want to make any changes so its is being forced upon it with companies relocating production in order to compete. There is also less employment in the US and the capital to make changes is being bled off in social benefits and jobs and production lost.
It would be nice if current policies had any hope of turning this around. Instead, they seem to be accelerating the loss of jobs.
Sunday, November 29, 2009
Rising Rates Threaten Bank Stocks - WSJ.com
Rising Rates Threaten Bank Stocks - WSJ.com:
People blame the banks for not lending. Let's think about this!
"And, you speak of loans? Let's see? The economy is in the tank. Unemployment is 20% (or very close, 17.5% as of November) and all of the government's policies are to provide artificial (i.e. consumption) stimulus while at the same time passing and planning to pass more and more taxes and cost increases on business and labor!
Example: a bank will lend to someone for 5 years. So let's do an assessment:
1) This isn't enough time for the borrower to amortize the cost of whatever the business is borrowing the money for - so, part of the repayment of the loan will have to come from after-tax dollars. And, lo-and-behold, the government is going to be raising the tax rate so the old forecast (read: business plan) is probably underestimating the revenue that will have to be raised to provide the after-tax income to amortize the loan.
2) Now, the next change to the business plan is the cost of labor. New health care mandates will boost this. We know the government is fibbing on the true costs, but even these will add to the expenses the business has to face.
3) Oh yes, the interest rate. Let's see? Currently the rate is pretty low - but, we are talking about a 5-year loan (could be longer and the situation would be worse). So, if the Feds are going to be spending 25% of so of GDP and the economy is only projected to increase enough to keep the unemployment rate where it is today (Fed tax revenue at 15% of GDP), then one has to look out for higher interest rates. Will they be double-digit of high double digit? Whatever, the interest cost on the loan will be up. Has this been factored into the borrowing?
4) On and on.
5) Oh yes, the FDIC is getting tougher and tougher on wanting safe loans. So, how will the FDIC look at this loan? Let's see, they've already closed over 100 banks this year. How should the bank and its board look at this?
Clearly the answer is - don't lend!!!!!!!!"
People blame the banks for not lending. Let's think about this!
"And, you speak of loans? Let's see? The economy is in the tank. Unemployment is 20% (or very close, 17.5% as of November) and all of the government's policies are to provide artificial (i.e. consumption) stimulus while at the same time passing and planning to pass more and more taxes and cost increases on business and labor!
Example: a bank will lend to someone for 5 years. So let's do an assessment:
1) This isn't enough time for the borrower to amortize the cost of whatever the business is borrowing the money for - so, part of the repayment of the loan will have to come from after-tax dollars. And, lo-and-behold, the government is going to be raising the tax rate so the old forecast (read: business plan) is probably underestimating the revenue that will have to be raised to provide the after-tax income to amortize the loan.
2) Now, the next change to the business plan is the cost of labor. New health care mandates will boost this. We know the government is fibbing on the true costs, but even these will add to the expenses the business has to face.
3) Oh yes, the interest rate. Let's see? Currently the rate is pretty low - but, we are talking about a 5-year loan (could be longer and the situation would be worse). So, if the Feds are going to be spending 25% of so of GDP and the economy is only projected to increase enough to keep the unemployment rate where it is today (Fed tax revenue at 15% of GDP), then one has to look out for higher interest rates. Will they be double-digit of high double digit? Whatever, the interest cost on the loan will be up. Has this been factored into the borrowing?
4) On and on.
5) Oh yes, the FDIC is getting tougher and tougher on wanting safe loans. So, how will the FDIC look at this loan? Let's see, they've already closed over 100 banks this year. How should the bank and its board look at this?
Clearly the answer is - don't lend!!!!!!!!"
The Economy and the 3 Farmers
Someone asked me what I think about the current economic situation in the US (just after Thanksgiving).
One way to think about the economy is to think about the story of three farmers. Each knows that they need to set aside 10% of their harvest as seed for the next season.
A. Farmer A reduces his consumption so that he'll have the seed for the next year.
B. Farmer B is extra hungry so he only saves 9%. Pretty soon his harvest is declining year by year and he is getting hungrier and hungrier and can no longer find grain to sell for the little extras his family had been enjoying.
C. Then there is Farmer C. This farmer is very aggressive. He tightens his belt and saves 11-12% of his harvest every year. As a result, he has more and more to eat and, when he trades some grain or sells it, he gets to have lots of new things to help around the farm and the house and he actually makes his land even more productive. He can now send his kids to school, etc.
Now we have a situation where the government comes along and decides Farmer A is too well off and they will have to take some of his crop (more every year) to help Farmer B who just isn't doing as well as B would like. Government believes outcome equality is more important than equality of opportunity.
So my view on the economy is we have the US government doing what I note above to Farmer A; and we have the Chinese encouraging its citizens to be like Farmer C (which they are succeeding in doing).
One way to think about the economy is to think about the story of three farmers. Each knows that they need to set aside 10% of their harvest as seed for the next season.
A. Farmer A reduces his consumption so that he'll have the seed for the next year.
B. Farmer B is extra hungry so he only saves 9%. Pretty soon his harvest is declining year by year and he is getting hungrier and hungrier and can no longer find grain to sell for the little extras his family had been enjoying.
C. Then there is Farmer C. This farmer is very aggressive. He tightens his belt and saves 11-12% of his harvest every year. As a result, he has more and more to eat and, when he trades some grain or sells it, he gets to have lots of new things to help around the farm and the house and he actually makes his land even more productive. He can now send his kids to school, etc.
Now we have a situation where the government comes along and decides Farmer A is too well off and they will have to take some of his crop (more every year) to help Farmer B who just isn't doing as well as B would like. Government believes outcome equality is more important than equality of opportunity.
So my view on the economy is we have the US government doing what I note above to Farmer A; and we have the Chinese encouraging its citizens to be like Farmer C (which they are succeeding in doing).
Saturday, November 28, 2009
A typical sharp economic rebound?
Lots of people think the rise in the stock market is evidence of a sharp economic rebound. Can this be so?
History on markets stress that people tend to react to the way past events unfolded. Not necessarily how current events would suggest one should act.
This is why in the 1970's interest rates always trailed inflation - i.e. people couldn't believe interest rates would go so high.
Now, people are discounting the negative fiscal policies because they don't see the US going the way of the State of Michigan or the American car companies.
Stepping back a bit, it's also like housing prices going up much faster than people's incomes - would you or wouldn't you buy into it? Most people bought into it the same way they used to see pyramid schemes - i.e. the late-comers get screwed.
Right now companies are getting good profits by cutting employment. Will these profits be sustainable (and, if so, where will they keep coming from if the consumer/purchaser doesn't have a job and after (maybe 5-10 years) unemployment isn't extended any more?)?
If one thinks of the price of a stock reflecting the "present value of the future value" of a stream of earnings, then the prices might be low if the future earnings become highly inflated and the discount rate remains - as it was in the 70's - below the inflation rate.
What is clear from current policies in Washington is that jobs are very unlikely to be coming back and in terms of purchasing power, Americans will be living much more like a European lifestyle where people have less, do less and look forward to much less in the future.
And, because the US has such a burden of the religious right, it may be worse than the more secular socialist environment of Europe.
Who knows?
Whatever is said, the sharp rebound does not reflect the economic snapback that is typical of most interest rate led recoveries!
History on markets stress that people tend to react to the way past events unfolded. Not necessarily how current events would suggest one should act.
This is why in the 1970's interest rates always trailed inflation - i.e. people couldn't believe interest rates would go so high.
Now, people are discounting the negative fiscal policies because they don't see the US going the way of the State of Michigan or the American car companies.
Stepping back a bit, it's also like housing prices going up much faster than people's incomes - would you or wouldn't you buy into it? Most people bought into it the same way they used to see pyramid schemes - i.e. the late-comers get screwed.
Right now companies are getting good profits by cutting employment. Will these profits be sustainable (and, if so, where will they keep coming from if the consumer/purchaser doesn't have a job and after (maybe 5-10 years) unemployment isn't extended any more?)?
If one thinks of the price of a stock reflecting the "present value of the future value" of a stream of earnings, then the prices might be low if the future earnings become highly inflated and the discount rate remains - as it was in the 70's - below the inflation rate.
What is clear from current policies in Washington is that jobs are very unlikely to be coming back and in terms of purchasing power, Americans will be living much more like a European lifestyle where people have less, do less and look forward to much less in the future.
And, because the US has such a burden of the religious right, it may be worse than the more secular socialist environment of Europe.
Who knows?
Whatever is said, the sharp rebound does not reflect the economic snapback that is typical of most interest rate led recoveries!
Knowing Your Own Risk Tolerance -- Interview with Michael Cembalest - Barrons.com
Knowing Your Own Risk Tolerance -- Interview with Michael Cembalest - Barrons.com: "we will soon have a month when interest outlays on debt are larger than defense outlays -- for the first time in the country's history."
An Interesting Tidbit on Healthcare
An interesting healthcare (read: European social healthcare) tidbit came to me this week from a friend. They were reading their embassy's report on healthcare in one of the European countries (both countries are in the EU).
The comment was made that the government run healthcare in the subject country was of rather poor quality (I can't mention countries, but it would make you laugh if I could) but that private insurance (yes, no typo - privately paid insurance) offered the respective citizens to have a measurably better quality of healthcare. But, this was from private (and not public) hospitals and physicians.
Not to put an undue point on it but, it does suggest how ridiculous and crazy the attempt to give everyone the same high quality of care the healthcare reforms are in the US.
Old Europe has learned that even with high taxes and very low economic growth, eventually you have to get somewhat back to getting what you pay for and everyone doesn't get the same free lunch!
The comment was made that the government run healthcare in the subject country was of rather poor quality (I can't mention countries, but it would make you laugh if I could) but that private insurance (yes, no typo - privately paid insurance) offered the respective citizens to have a measurably better quality of healthcare. But, this was from private (and not public) hospitals and physicians.
Not to put an undue point on it but, it does suggest how ridiculous and crazy the attempt to give everyone the same high quality of care the healthcare reforms are in the US.
Old Europe has learned that even with high taxes and very low economic growth, eventually you have to get somewhat back to getting what you pay for and everyone doesn't get the same free lunch!
Slishing and Sloshing
Inflation, Deflation, Continued Low Rates - the Banter in the Media
But, one does wonder at what point all of the dollars sloshed against the economic growth rope eventually build up into such a dam that when they breakthrough, inflation follows or higher interest rates follow in the wake?
Perhaps it's a question of can the sloshing keep up with Federal borrowing?
And, one thinks of California's string of budgetary imbroglios, which came to a head this past summer when - finally and after almost unbearable angst (plus an additional 10% withholding of income taxes - the State finally had to cry uncle and start to cut expenses.
Since the Congress appears more intent on increasing expenses in a major way and has a printing press - the idea of the low rate, dollar flood, might surface first in the gold, oil and commodity prices; ah, but wait, higher oil might mean higher gasoline prices and that might be inflationary!
But, one does wonder at what point all of the dollars sloshed against the economic growth rope eventually build up into such a dam that when they breakthrough, inflation follows or higher interest rates follow in the wake?
Perhaps it's a question of can the sloshing keep up with Federal borrowing?
And, one thinks of California's string of budgetary imbroglios, which came to a head this past summer when - finally and after almost unbearable angst (plus an additional 10% withholding of income taxes - the State finally had to cry uncle and start to cut expenses.
Since the Congress appears more intent on increasing expenses in a major way and has a printing press - the idea of the low rate, dollar flood, might surface first in the gold, oil and commodity prices; ah, but wait, higher oil might mean higher gasoline prices and that might be inflationary!
Thursday, November 26, 2009
The Dollar and California Here We Come!
Dollar Rebounds on Dubai Debt Worries
http://online.wsj.com/article/SB10001424052748703499404574559273731673930.html?mod=djemTMB#articleTabs%3Darticle
Might the current Washington administration be of a similar mind to their Democratic brethren in California?
If so (and why not since California is the home of Pelosi), then what did California do to keep the benefits rolling until this year? Well, for one they kept spending on every item on their social agenda. They also didn't cut back on anything and gladly raised public "union" salaries and benefits to twice the level of those in the private sector (according to a number of articles in the mainstream press; to wit, the retirement income of the Orinda, CA fire chief was reported in June to be $300,000 per year, at a retirement age of 51).
Thus, if California would be an economic model for the current administration, and it appears from their emphasis on "healthcare funding expansion" rather than "healthcare reform", this is the direction they are going.
And, since the administration and Congress appear to pay only the most cursory lip service to deficit reduction (see how they increased the budget in March for their cherished programs).
And, since they believe higher taxes is always a good idea to fund their social welfare (not unlike California), what might we have to look forward to?
1. Let's see? California has lost a bunch of its tax base as the well-to-do and business decided they didn't like paying taxes - i.e. reduced income and jobs.
2. While California has had some difficulty borrowing, Washington has the Federal Reserve's quantitative easing.
It would be nice to see policies in Washington that don't shout out "California here we come!" but, of course, who'll be bailing out Uncle Sam?
Etc., etc., etc. with respect to jobs and inflation and interest rates and American's standard of living!
In light of the above, does it make sense to hold paper dollars or something that can stand up to the shower of cash from quantitative easing?
http://online.wsj.com/article/SB10001424052748703499404574559273731673930.html?mod=djemTMB#articleTabs%3Darticle
Might the current Washington administration be of a similar mind to their Democratic brethren in California?
If so (and why not since California is the home of Pelosi), then what did California do to keep the benefits rolling until this year? Well, for one they kept spending on every item on their social agenda. They also didn't cut back on anything and gladly raised public "union" salaries and benefits to twice the level of those in the private sector (according to a number of articles in the mainstream press; to wit, the retirement income of the Orinda, CA fire chief was reported in June to be $300,000 per year, at a retirement age of 51).
Thus, if California would be an economic model for the current administration, and it appears from their emphasis on "healthcare funding expansion" rather than "healthcare reform", this is the direction they are going.
And, since the administration and Congress appear to pay only the most cursory lip service to deficit reduction (see how they increased the budget in March for their cherished programs).
And, since they believe higher taxes is always a good idea to fund their social welfare (not unlike California), what might we have to look forward to?
1. Let's see? California has lost a bunch of its tax base as the well-to-do and business decided they didn't like paying taxes - i.e. reduced income and jobs.
2. While California has had some difficulty borrowing, Washington has the Federal Reserve's quantitative easing.
It would be nice to see policies in Washington that don't shout out "California here we come!" but, of course, who'll be bailing out Uncle Sam?
Etc., etc., etc. with respect to jobs and inflation and interest rates and American's standard of living!
In light of the above, does it make sense to hold paper dollars or something that can stand up to the shower of cash from quantitative easing?
On Thomas Frank's - A Liberal Thanksgiving
A Liberal Thanksgiving
http://online.wsj.com/article/SB10001424052748704611404574556130591002784.html?mod=loomia&loomia_si=t0:a16:g4:r4:c0:b29069136
With all this rambling, one can't but question whether the author isn't supporting the Pelosi/Obama alternative of social welfare statism instead of the idea of individual rights, individual choices and individual responsibility.
Clearly the markets confounded many in the heyday of sub-prime mortgages. But, who didn't question the relationship of house prices to income during the recent real estate heyday include those who sit in Congress, as well as an assorted group of supposed regulators, non-regulators, banks and investors. So, who's to blame? Grab a mirror and don't look for a savior. (As PT Barnum (or someone like him) said, "there's a sucker borne every minute".)
Some of those current suckers look as though they believed in the Dubai economic miracle.
And, 53% of blue collar Democrats per a recent survey believe Obama is on the right track with economy. (One wonders what the percentage of UAW members believe and believed the union took the right approach to GM and Chrysler?)
So is there some benevolent, all seeing brilliant parties or parties to be trusted to help achieve whatever goals people have for themselves and others; or, should such brilliance (for hey or nay) be left to the individual?
My vote is for the individual!
http://online.wsj.com/article/SB10001424052748704611404574556130591002784.html?mod=loomia&loomia_si=t0:a16:g4:r4:c0:b29069136
With all this rambling, one can't but question whether the author isn't supporting the Pelosi/Obama alternative of social welfare statism instead of the idea of individual rights, individual choices and individual responsibility.
Clearly the markets confounded many in the heyday of sub-prime mortgages. But, who didn't question the relationship of house prices to income during the recent real estate heyday include those who sit in Congress, as well as an assorted group of supposed regulators, non-regulators, banks and investors. So, who's to blame? Grab a mirror and don't look for a savior. (As PT Barnum (or someone like him) said, "there's a sucker borne every minute".)
Some of those current suckers look as though they believed in the Dubai economic miracle.
And, 53% of blue collar Democrats per a recent survey believe Obama is on the right track with economy. (One wonders what the percentage of UAW members believe and believed the union took the right approach to GM and Chrysler?)
So is there some benevolent, all seeing brilliant parties or parties to be trusted to help achieve whatever goals people have for themselves and others; or, should such brilliance (for hey or nay) be left to the individual?
My vote is for the individual!
Wednesday, November 25, 2009
GDP and News on the Job Front (November 2009)
Economic Revival Shown Less Robust
http://online.wsj.com/article/SB125906901646162279.html?mod=djemITP#articleTabs%3Darticle
A puzzle is how tax receipts can decline at such a greater rate than GDP? Some variance might make sense - some earned income is being replaced with unemployment benefits; yet, it appears profits are more robust than revenues (which would seem to suggest a lower GDP figure).
Another aspect of the article that was missing was an examination and consideration of the basic production equation (production = (cost of) labor + capital + raw materials).
Obviously, we know the cost of labor in the US is going up (with a direct cost and union risk factor that probably doubles it from what it is on average today). This is clearly anti-job-creation. (The estimated total cost of labor is probably running today at a factor of 3-4 times the gross pay of the worker.
As such the above production equation would suggest that the other inputs have to be adjusted - since the end product cost can't vary (much to the chagrin of the UAW and the other unions).
Also, since capital isn't captive to America, it is going to seek its highest return (beta and alpha/risk adjusted, etc.). In such a situation, we see that capital is either seeking a return commensurate with corporate profits or a risk-free return from government securities. (Government securities of course ignoring or questionably pricing in the inflation risk - except that people are apparently seeking shorter maturities and buying gold).
Based on the above and the policies of the government, the picture on the job front wouldn't appear to be particularly good for Americans looking for jobs.
http://online.wsj.com/article/SB125906901646162279.html?mod=djemITP#articleTabs%3Darticle
A puzzle is how tax receipts can decline at such a greater rate than GDP? Some variance might make sense - some earned income is being replaced with unemployment benefits; yet, it appears profits are more robust than revenues (which would seem to suggest a lower GDP figure).
Another aspect of the article that was missing was an examination and consideration of the basic production equation (production = (cost of) labor + capital + raw materials).
Obviously, we know the cost of labor in the US is going up (with a direct cost and union risk factor that probably doubles it from what it is on average today). This is clearly anti-job-creation. (The estimated total cost of labor is probably running today at a factor of 3-4 times the gross pay of the worker.
As such the above production equation would suggest that the other inputs have to be adjusted - since the end product cost can't vary (much to the chagrin of the UAW and the other unions).
Also, since capital isn't captive to America, it is going to seek its highest return (beta and alpha/risk adjusted, etc.). In such a situation, we see that capital is either seeking a return commensurate with corporate profits or a risk-free return from government securities. (Government securities of course ignoring or questionably pricing in the inflation risk - except that people are apparently seeking shorter maturities and buying gold).
Based on the above and the policies of the government, the picture on the job front wouldn't appear to be particularly good for Americans looking for jobs.
Tuesday, November 24, 2009
A New Level of the Unimaginable
Government Deficits and Private Growth
http://online.wsj.com/article/SB20001424052748703932904574511243712388988.html?mod=djemITP#articleTabs%3Darticle
We really can't imagine that the US economy won't revive, but...
It's rather like loading up a camel - for a while, it works. When the camel decides enough is enough, the entire load has to be removed. To wit, the entire deficit and transfer of wealth from producers to non-producers.
It's a new level of the unimaginable. But, is it real? Everyone is making bets. Mine would be it's highly likely - but, who knows?
The Business-Labor Divide
http://online.wsj.com/article/SB10001424052748704533904574543662226907336.html#articleTabs%3Darticle
Stern's comment about unions distributing wealth is exactly the problem. It doesn't distribute wealth based on productivity or as a reward for doing one's work well; rather, it ties it to things like longevity/seniority (see teacher's unions and the UAW, etc.).
Also, the union has no ability to evaluate whether the company can stay competitive over time. It wants immediate and long term benefits and rewards.
Thus, we can't ignore what has happened with our domestic car companies and exculpate the unions. Rather, we should be looking in horror at what happened. (I'd jail the union leaders, but that might be going a bit far.)
However, the world sets a price for labor (and this price includes all of the benefits and social charges labor or the employer has to pay for). This has gotten out of hand in America as the individual worker isn't making these decisions (it's his/her union and the government - both at a state and national level).
Why one might ask are there such high salaries paid to certain people and not to others (as union leader Stern says). Well, it might be that the productivity and value of the work performed that generates the ability to pay those salaries is exactly what happens in a world of supply and demand.
Likewise, we've denied society the ability to create and employ people at more menial salaries because we think those salaries are too low, the benefits too sparse. So, either the jobs go undone or they are done by people who drop out of the productive salary-paying economy and do the jobs themselves (the labor conundrum).
The Economy and Finance
http://online.wsj.com/article/SB10001424052748704204304574543920660621900.html#articleTabs%3Darticle
What's missing from this discussion - although closest in what's said by Amex - with a lens of increasing and supporting employment as a focus of all policy decisions - is the issue of individual employee choice on the benefits they want to pay for.
In other words, too much is taken from the average employee to pay for things that government decides are important - but which, the current economic situation doesn't support.
As a result, it may cost an employer $400 for every $100 in gross employee salary; and, the employee will only net $65 or 70 (and some only $45).
With that type of allocation, the government has taken the decision-making away from the employee - with a benevolent intent and high degree of social consciousness - but with an ultimately destructive impact on employment.
Since this overreaching on the part of government was excluded from anything presented, one can't have a very positive view of the jobs picture. Instead, the government and Fed will be pushing on the job string as they have been with easy money. And, as indicated by the price of gold and commodities and the unemployment rate, it looks like investors see inflation down the road. (And, no change on the job front.)
http://online.wsj.com/article/SB20001424052748703932904574511243712388988.html?mod=djemITP#articleTabs%3Darticle
We really can't imagine that the US economy won't revive, but...
It's rather like loading up a camel - for a while, it works. When the camel decides enough is enough, the entire load has to be removed. To wit, the entire deficit and transfer of wealth from producers to non-producers.
It's a new level of the unimaginable. But, is it real? Everyone is making bets. Mine would be it's highly likely - but, who knows?
The Business-Labor Divide
http://online.wsj.com/article/SB10001424052748704533904574543662226907336.html#articleTabs%3Darticle
Stern's comment about unions distributing wealth is exactly the problem. It doesn't distribute wealth based on productivity or as a reward for doing one's work well; rather, it ties it to things like longevity/seniority (see teacher's unions and the UAW, etc.).
Also, the union has no ability to evaluate whether the company can stay competitive over time. It wants immediate and long term benefits and rewards.
Thus, we can't ignore what has happened with our domestic car companies and exculpate the unions. Rather, we should be looking in horror at what happened. (I'd jail the union leaders, but that might be going a bit far.)
However, the world sets a price for labor (and this price includes all of the benefits and social charges labor or the employer has to pay for). This has gotten out of hand in America as the individual worker isn't making these decisions (it's his/her union and the government - both at a state and national level).
Why one might ask are there such high salaries paid to certain people and not to others (as union leader Stern says). Well, it might be that the productivity and value of the work performed that generates the ability to pay those salaries is exactly what happens in a world of supply and demand.
Likewise, we've denied society the ability to create and employ people at more menial salaries because we think those salaries are too low, the benefits too sparse. So, either the jobs go undone or they are done by people who drop out of the productive salary-paying economy and do the jobs themselves (the labor conundrum).
The Economy and Finance
http://online.wsj.com/article/SB10001424052748704204304574543920660621900.html#articleTabs%3Darticle
What's missing from this discussion - although closest in what's said by Amex - with a lens of increasing and supporting employment as a focus of all policy decisions - is the issue of individual employee choice on the benefits they want to pay for.
In other words, too much is taken from the average employee to pay for things that government decides are important - but which, the current economic situation doesn't support.
As a result, it may cost an employer $400 for every $100 in gross employee salary; and, the employee will only net $65 or 70 (and some only $45).
With that type of allocation, the government has taken the decision-making away from the employee - with a benevolent intent and high degree of social consciousness - but with an ultimately destructive impact on employment.
Since this overreaching on the part of government was excluded from anything presented, one can't have a very positive view of the jobs picture. Instead, the government and Fed will be pushing on the job string as they have been with easy money. And, as indicated by the price of gold and commodities and the unemployment rate, it looks like investors see inflation down the road. (And, no change on the job front.)
Monday, November 23, 2009
Overcharging, Underpaying - Blame the Government Not the Employer
Weighing Jobs and Deficit
http://online.wsj.com/article/SB125894389767760063.html#articleTabs%3Darticle
Perhaps a look at the jobs forest would be better than looking at the jobs trees?
For example: The electrical contractor hires an electrician. The salary is $100 for the electrician. But, the employer has to pay social security, medicare, unemployment, workmen's compensation, now healthcare, etc. So, the employer needs to charge someone using the electrician's services $300 - let's say for the day or hour.
Now the electrician, who nominally has a salary of $100, he/she also has to pay taxes for social security, etc. plus income taxes. Let's say the electrician takes home a net spendable salary of $60. So $240 has gone to taxes and benefits that the government has decided the electrician should be paying and contributing to.
Now - the electrician himself/herself would like to hire a plumber. But, the plumber has the same cost structure as the electrician - i.e. the electrician will have to pay the plumbing contractor $300 per hour or day for the services of the plumber. BUT THE ELECTRICIAN ONLY TAKES HOME $60 to pay the $300.
In other words, it's more than likely the electrician will try and do the plumbing himself or herself (or just not have the job done at all)!
As such, the society loses productivity (and gross domestic product).
Almost all the policies of the administration are geared to widening this gap between what the worker should earn and what the worker takes home.
One way out would be to make it possible for all workers to be independent contractors and to remove any required contributions to anything but a minimal social security and medicare. If they do contribute their level of contribution would be reflected in their final payout.
Also, for health insurance - let the private insurance industry come up with some bare bones policies. These would be much more like the cheapest health plans offered in Europe.
If something isn't done, the US economy will find it very difficult to add jobs when the competing economies (and we're not talking Europe here) avoid this huge labor conundrum where society takes so much of the income paid to the worker.
http://online.wsj.com/article/SB125894389767760063.html#articleTabs%3Darticle
Perhaps a look at the jobs forest would be better than looking at the jobs trees?
For example: The electrical contractor hires an electrician. The salary is $100 for the electrician. But, the employer has to pay social security, medicare, unemployment, workmen's compensation, now healthcare, etc. So, the employer needs to charge someone using the electrician's services $300 - let's say for the day or hour.
Now the electrician, who nominally has a salary of $100, he/she also has to pay taxes for social security, etc. plus income taxes. Let's say the electrician takes home a net spendable salary of $60. So $240 has gone to taxes and benefits that the government has decided the electrician should be paying and contributing to.
Now - the electrician himself/herself would like to hire a plumber. But, the plumber has the same cost structure as the electrician - i.e. the electrician will have to pay the plumbing contractor $300 per hour or day for the services of the plumber. BUT THE ELECTRICIAN ONLY TAKES HOME $60 to pay the $300.
In other words, it's more than likely the electrician will try and do the plumbing himself or herself (or just not have the job done at all)!
As such, the society loses productivity (and gross domestic product).
Almost all the policies of the administration are geared to widening this gap between what the worker should earn and what the worker takes home.
One way out would be to make it possible for all workers to be independent contractors and to remove any required contributions to anything but a minimal social security and medicare. If they do contribute their level of contribution would be reflected in their final payout.
Also, for health insurance - let the private insurance industry come up with some bare bones policies. These would be much more like the cheapest health plans offered in Europe.
If something isn't done, the US economy will find it very difficult to add jobs when the competing economies (and we're not talking Europe here) avoid this huge labor conundrum where society takes so much of the income paid to the worker.
Is Michigan Going to Be Like a Camel?
Michigan's Broken 'Promise'
http://online.wsj.com/article/SB125893723996459927.html#articleTabs%3Darticle
We all have heard the story about the "straw breaking the camel's back". Well,Perhaps the straw and the camel have a sad lesson to teach the State of Michigan and the UAW?
The greed of unions and the state to tax, tax, tax and over consume have killed the state's previously existing job engine. Sure, there was China and competition; but, you either meet competition intelligently or stupidly. Sadly, Michigan and the UAW chose the least possibly intelligent route. And, it has failed. As the load on the camel gets bigger, it's harder to get things turned around.
Since they are still loading the camel, Michiganders can only hope that it's not going to take until the last straw and a major restart with everything coming off. This is not a picture one can look forward to.
http://online.wsj.com/article/SB125893723996459927.html#articleTabs%3Darticle
We all have heard the story about the "straw breaking the camel's back". Well,Perhaps the straw and the camel have a sad lesson to teach the State of Michigan and the UAW?
The greed of unions and the state to tax, tax, tax and over consume have killed the state's previously existing job engine. Sure, there was China and competition; but, you either meet competition intelligently or stupidly. Sadly, Michigan and the UAW chose the least possibly intelligent route. And, it has failed. As the load on the camel gets bigger, it's harder to get things turned around.
Since they are still loading the camel, Michiganders can only hope that it's not going to take until the last straw and a major restart with everything coming off. This is not a picture one can look forward to.
Sunday, November 22, 2009
Not so Different from the Movie 2012
The Coming Deficit Disaster
http://online.wsj.com/article/SB20001424052748704888404574547492725871998.html?mod=djemITP#articleTabs%3Darticle
What do current economic circumstances have in common?
As one recalls how people who held bonds got battered in the far better economic climate of the 1970's, one is only left to imagine how many retirees (and particularly early retirees) will come to rue the days ahead in the economy.
It reminds one of the part of the Titanic movie after the ship had struck the iceberg but the Captain assured everyone there was not problem, so lifeboats weren't launched.
There are those who, as union leaders and followers, had no problem with the bleeding of GM (UAW) or the failure to teach children (40% of Washington's public school students were recently reported to not graduate from high school). Thus, they don't see a problem.
The administration and the Democratic congress clearly don't believe a problem really exists either. They are paying lip service and would like to have more jobs, but don't have the ability to see what the problem is. Red herrings are ever present.
Somehow it seems very similar to religion which relies on faith with or without results.
Those who see the travails a head are giving lots of warning. In a way, it's not unlike perhaps the survivors in the movie 2012. Even seeing what lies ahead doesn't guarantee survival.
http://online.wsj.com/article/SB20001424052748704888404574547492725871998.html?mod=djemITP#articleTabs%3Darticle
What do current economic circumstances have in common?
As one recalls how people who held bonds got battered in the far better economic climate of the 1970's, one is only left to imagine how many retirees (and particularly early retirees) will come to rue the days ahead in the economy.
It reminds one of the part of the Titanic movie after the ship had struck the iceberg but the Captain assured everyone there was not problem, so lifeboats weren't launched.
There are those who, as union leaders and followers, had no problem with the bleeding of GM (UAW) or the failure to teach children (40% of Washington's public school students were recently reported to not graduate from high school). Thus, they don't see a problem.
The administration and the Democratic congress clearly don't believe a problem really exists either. They are paying lip service and would like to have more jobs, but don't have the ability to see what the problem is. Red herrings are ever present.
Somehow it seems very similar to religion which relies on faith with or without results.
Those who see the travails a head are giving lots of warning. In a way, it's not unlike perhaps the survivors in the movie 2012. Even seeing what lies ahead doesn't guarantee survival.
Friday, November 20, 2009
Here a job, there a job - whoops, there goes another job.
With the Democrats concentrating on adding more labor costs (the healthcare fund raiser currently before Congress) and hearings on capital hill worried more about what the Fed is doing and the bailout of banks by Geitner, it's clear that the real cause of businesses not hiring and expanding with US labor is being ignored.
Thus, the question about where the price of gold will go.
Because, if the administration and the Congress continue on their current paths, then there will be huge debts, likely another economic downleg and in all liklihood the necessity of having the Fed cover even more of the government's borrowing costs.
None of this is good for jobs - but they just don't seem to be applying any logic. Ah well, they learned from the UAW and the other unions, so what does logic matter. It's all for immediate gratification.
Thus, the question about where the price of gold will go.
Because, if the administration and the Congress continue on their current paths, then there will be huge debts, likely another economic downleg and in all liklihood the necessity of having the Fed cover even more of the government's borrowing costs.
None of this is good for jobs - but they just don't seem to be applying any logic. Ah well, they learned from the UAW and the other unions, so what does logic matter. It's all for immediate gratification.
Monday, November 16, 2009
Blinder Ways to Add Jobs
How Washington Can Create Jobs (by Alan Blinder)
http://online.wsj.com/article/SB20001424052748703683804574533843234723498.html?mod=djemITP#articleTabs%3Darticle
What is missing from Prof. Blinder's discussion and the other general jobs discussions? Can we say 'business-friendly' policies?
We hear about a health overhaul, which is designed to find a way to get more money into a health system that is supporting the costs of basically medicare and medicaid (the red herring of bringing the currently uninsured in is basically a money grab for young people who have fewer claims and aren't paying the huge premium costs).
As for supporting business through saner tax policies - let's admit that the administration never saw a taxable dollar from someone with money that they couldn't find a worthy recipient of a government program for!
There does seem to be an implicit admission that we need to find private sector jobs - so, where are the questions about why the jobs aren't forthcoming? My guess is the answers are so strident and obvious and obviously going to gore some constituency or another of both parties that they'd like to avoid the facts and go with the fiction.
It's all nice to think of minimum wages and blaming the Chinese, but we spend too much on consumption in this country - in particular, on the consumption of government services, mandated benefits - and the fact that we don't want to allow wages to reflect the actual value added of the work being performed (the old labor conundrum comes in here - whereby so much is taken out of the salary that could be paid to the worker by the employer that the worker is left with too little net purchasing power - i.e. it costs the employer $300 per day for the worker but the worker goes home with only a $100. Where did the rest go? Government programs.).
Let's get back to letting people know and choose what benefits they are paying for, etc., etc., etc.
http://online.wsj.com/article/SB20001424052748703683804574533843234723498.html?mod=djemITP#articleTabs%3Darticle
What is missing from Prof. Blinder's discussion and the other general jobs discussions? Can we say 'business-friendly' policies?
We hear about a health overhaul, which is designed to find a way to get more money into a health system that is supporting the costs of basically medicare and medicaid (the red herring of bringing the currently uninsured in is basically a money grab for young people who have fewer claims and aren't paying the huge premium costs).
As for supporting business through saner tax policies - let's admit that the administration never saw a taxable dollar from someone with money that they couldn't find a worthy recipient of a government program for!
There does seem to be an implicit admission that we need to find private sector jobs - so, where are the questions about why the jobs aren't forthcoming? My guess is the answers are so strident and obvious and obviously going to gore some constituency or another of both parties that they'd like to avoid the facts and go with the fiction.
It's all nice to think of minimum wages and blaming the Chinese, but we spend too much on consumption in this country - in particular, on the consumption of government services, mandated benefits - and the fact that we don't want to allow wages to reflect the actual value added of the work being performed (the old labor conundrum comes in here - whereby so much is taken out of the salary that could be paid to the worker by the employer that the worker is left with too little net purchasing power - i.e. it costs the employer $300 per day for the worker but the worker goes home with only a $100. Where did the rest go? Government programs.).
Let's get back to letting people know and choose what benefits they are paying for, etc., etc., etc.
Sunday, November 15, 2009
The Wrong Trees in the Woods
Overly Stimulating
"ADMINISTRATION ESTIMATES OF JOBS created or saved by stimulus spending are embarrassingly inaccurate..."
http://online.barrons.com/article/SB125815707307947809.html?mod=BOL_hps_dc#articleTabs%3Darticle
Could it be that we're looking and counting the wrong trees in the woods and not considering the actual forest?
In other words, should we even be looking at the jobs created by government spending; or, should we be looking at jobs lost or not created by misbeguided government policies?
I'd suggest we look at whether we are creating a better, stronger, more entrepreneurially rewarding business climate or not. And, my own answer, which I'd posit is reflected in the unemployment rate, is that we are not.
While looking at what government allowed to happen to GM (bankruptcy and equity investor wipe-out to preserve some union jobs and retirement benefits) as the government's plan for the economy, it is perhaps worth considering the impact it has on investors and business people.
"ADMINISTRATION ESTIMATES OF JOBS created or saved by stimulus spending are embarrassingly inaccurate..."
http://online.barrons.com/article/SB125815707307947809.html?mod=BOL_hps_dc#articleTabs%3Darticle
Could it be that we're looking and counting the wrong trees in the woods and not considering the actual forest?
In other words, should we even be looking at the jobs created by government spending; or, should we be looking at jobs lost or not created by misbeguided government policies?
I'd suggest we look at whether we are creating a better, stronger, more entrepreneurially rewarding business climate or not. And, my own answer, which I'd posit is reflected in the unemployment rate, is that we are not.
While looking at what government allowed to happen to GM (bankruptcy and equity investor wipe-out to preserve some union jobs and retirement benefits) as the government's plan for the economy, it is perhaps worth considering the impact it has on investors and business people.
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