Posted tagged ‘economy’

Looking Ahead Economically Speaking

September 6, 2013

Today the Government will release its monthly “jobs” numbers.  Analysts will report regardless of whether the numbers exceeded or trailed their projections, that the 7+% unemployment rate is less than the nation is capable of producing.  Citing the “good old days” of 2006, experts will say the recovery is still in progress but well underachieving the nation’s potential.

These prognostications could (and maybe have) been written weeks ahead of any jobs data release.  They are general statements and almost unprovable.  They are safe statements which neither damn or glorify the economy.  But there is a question whether current conditions will ever return the overall jobless rate to 2006 levels?

One must remember that in 2006, the economy was on “housing industry” steroids.  The housing industry lives on jobs.  Excavators, framers, roofers, plumbers, electricians, siders, and landscapers all enjoy work when a house is build.  In addition there are all the people who make the concrete, the cider blocks, nails, staples, windows, roofing shingles, doors, flooring materials, and kitchen appliances.  And let’s not forget the decorators, bed makers, rug layers, wall painters, cabinet installers, and audio visual equipment servicers.  Lastly there are the real estate agents, the surveyors, the title searchers, transfer agents, tax assessors, and the local Starbucks or coffer shop that provides the sandwiches and coffees for all these workers.

Without a doubt this is a valuable part of any economy.  The first question is how and where did/do Americans get the money to buy houses in the first place and start this domino effect of job creation?  The second question is where is that money today?

The general answer is that American industrial productivity (that produced the money to fuel the drive for housing) has been so successful that it has reduced the number of legacy jobs needed, and we are currently in a period of economic reallocation.  People who made steel or clothing, for example, are suppose to be “retraining” to become computer makers or users.  (If only that were true.)  Regardless, free enterprise promises that capitalists, if left alone, will reallocate resources if an industry becomes uncompetitive.  But, how long will it take and what will emerge at the other end?

The crystal ball is still pretty fuzzy.  Renewable energy is often cited as a future growth area.  Maybe so but what will happen to all those delivering present forms of energy.  Health care is a growing field but the question of who can afford it is becoming a more urgent concern.  High tech, computer aided, manufacturing is touted too.  And in the same breath, a pause arises when we think about our schools and current inventory of Americans who can barely read or write and can’t balance a check book.. these are not likely candidates for high tech jobs.

So… the American economic engine keeps puttering along.   We are living to die another day.   We must remember there is no obvious other country that is about to overtake the economic strength of the US.  Never the less, unless our economy does shift to fuller employment, we will be stuck with some difficult budget and tax issues where we will constantly be debating what can the government afford and who will pay for it.   These are seeds for a declining USA.

Ironically, all economic periods are cyclical.  That is this slow and steady growth we are currently experiencing will eventually need an adjustment and contract.  In the best of circumstances, the contraction will be mild and growth will return soon.  The irony is that should this slow down occur in 2016, Republicans, despite there hugely dysfunctional behavior and absence of ideas, could look like the prettiest girl in town.

What a hoot.

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School”s Out

August 3, 2013

Congress is out on its summer vacation.  The exodus began Friday as the weary lawmakers made their ways home.  They appear all to similar to school children beginning their summer vacations.

For some it was a time of pride.  They were part of a Congress which was on tract to be the least productive Congress of all time.  For others it was a time to recharge the batteries.

Low productivity just doesn’t happen.  It usually requires effort.   Mismanagement and/or misguidance will get these results.  The 113th Congress is about as dysfunctional as one can imagine, until of course, the 114th arrives.  What is happening?

The House of Representatives is controlled by a party which itself is in disarray.  Tea Party and ultra conservatives have chosen to remain within the Republican Party, but are only interested in their own agenda.  The bulk of the GOP, however, acts as if this minority were the majority.   The more moderate GOP members run around worried their seat may be up for grabs if they buck these conservatives.  So it is somewhat inevitable the House has voted to repeal Obamacare (over 40 times) when it knows the Senate will do nothing and the bill will die.  It seems normal that the House will decline to pass a “Transportation, Housing, and Urban Development bill” because it contains spending, and still feel quite free to complain about economic growth and joblessness.  This House clearly believes their electorate are brain dead and cannot understand the consequences of House action.

I wonder whether they are right?

The House members, of course, point to their greater objective of gaining control of the deficit.  Spending (unless on Defense or some project in “my” district) is off the table until a path to a balanced budget is found.  Principled to be sure, but very dangerous when not fully explained to the American people.

There can be no other outcome if budget balancing is to come rapidly and at the cost of reduced government spending, than increased unemployment.  In addition, reduced government spending will likely involve Medicare and Medicaid, and that will impact directly the elderly and the poor.

So, if this 113th Congress wants to be considered as serious public servants and truly believes extreme measures are needed, than these “balanced budget-shut down Washington” advocates should stand up and say so in full.

I will not hold my breath waiting for such utterances.  The 113th is not a Congress of brave men and women.  While many may want to do the “right thing”, what ever that may be, their financial supporters (or potential supporters of adversaries) seem to be calling the shots.  These special interests whose money flows to both Parties see the national good in even narrower terms than do these self absorbed politicians.

Common sense should bring most reasonable people to similar general conclusions.  The budget should be balanced at least most of the time.  The debt should be reduced to some much smaller amount (so that in a real emergency there is room to increase it through borrowing).  An abrupt change in our national defense spending can send unwanted messages to other Countries, especially those with bad intentions towards the US.  Medicare and Medicaid exist to provide protection for the elderly and the poor, a rapid deep change in funding will have wide spread impact upon millions.

So, we can see that balancing the budget and reducing the debt is likely to have negative impact short term on the economy, national security, and quality of life.  This does not mean we should not follow such a course.  Rather it argues about the pace of making these changes.

Balancing the budget and reducing the debt also beg the question of where the government spending should remain.  Again, people of reason know that there are certain services and projects that impact the economy, national security, and quality of life that only the government can undertake.  This type of spending needs to be viewed as an investment in the future.  Wise investments instead of costing the government money, ultimately produce “returns” which surpass the original expenditures.

None of these discussions seem compatible with the nature of the 113th.  None may be possible in the foreseeable future.

I am left wondering what the national crisis will have to be to get grown adults to begin acting that way?

Will History Repeat?

July 24, 2013

Shutting down the Government is risky business.  When Republicans followed Speaker Newt Gingrich’s advice and refused to approve legislation funding daily Government operations in 1995/1996, President Bill Clinton called their bluff.  Unfortunately for the GOP, it was not a bluff and the Government was forced to suspend all but essential services for 28 days.  The GOP paid the price for this irresponsibility in the next election.

The tables are almost set for a repeat.  President Obama has proposed a budget which calls for modest increases in spending while the GOP is calling for significant cuts (except in Defense and State).  They know their proposals won’t pass in the Senate but that hasn’t reduced their bravado.  To the contrary, Senate Republicans are spewing their own “Armageddon” warnings.  And what would be a better target than the Affordable Care Act?

So why this threat to repeat history?

  • Bluffing.  President Obama has demonstrated that he is a poor negotiator preferring to show his best hand right away.   The President, however, has no history of yielding as much as the GOP is asking.  Is this a wise GOP strategy?   Hmmm.
  • Principle.  The GOP has been consistently calling for a balanced budget and that will require significant spending cuts.  How can the GOP suddenly change its message?
  • Appeasing their base.  Most GOP supporters do not favor Democrat spending priorities and believe cuts are necessary.  How could the GOP not respond to this grass roots appeal?
  • Emotional reasons.  The GOP seems to believe that spending cuts, especially to entitlements and healthcare programs are a fundamental truth of life.  America is an exceptional Country, they believe, and pulling oneself up by the boot straps is simply part of what makes America great.  Hmmm.
  • Clear and logical reasons.  The GOP is supported by a brain trust of conservative economic thinkers who believe lowering taxes, emasculating Government services, and basically throwing fate to the hands of private enterprise is the way to go.  These same thinkers dismiss the notion of global economic connections (the US can prosper alone) and the experience which all the European Union nations have endured when they instituted austerity economic packages over those which could stimulate growth.  Hmmm.

In the end, it makes little difference why the GOP is so directed.  The GOP is flirting with serious damage once the American people find an alternative.  While Democrats represent more sanity on this issue, Democrats fall far short of having any long term plan for producing growth and a sound economy.

The answer to this predicament is, of course, doing nothing.  A budget compromise where spending increase below the rate of inflation and the national debt is extended without incident are the sensible answers.  The world’s economies are connected.   There is no place for the US to grow other than within its boarders  But is Congress smart enough to recognize this?

The GOP’s consistent and persistent rage against the Affordable Care Act is shameful in the absence of specific and actionable alternatives.  The GOP claim that ACA is flawed is most likely correct.  The question is where is it flawed?  (Remember the ACA is originally a Republican think tank proposal and it is a near copy of Mitt Romeny’s Massachusetts healthcare legislation.)

There is still a lot of time for reason to prevail.  The danger is that with each day, GOP leaders are gaining headlines with messages that also march them closer and closer to the cliff.  One of these days, the GOP will wake up and find that Americans (maybe not the very rich) are feeling good about the economy and the steady hand the President has carried towards domestic policy.

 

Lessons From Europe, Is Anyone Listening?

May 19, 2013

While Washington is aswirl with all sorts of Congressional Committee investigations, important lessons are being taught in Europe.  I just wonder whether anyone is watching or listening?

If one plots economic growth and compares the US economy to that of Europe, one might be shocked to see that the US is and has been doing far better than our friends across the Atlantic.  While Germany is showing positive growth, that growth is still insignificant compared to the US.  What?  Why is Europe dragging?

The quick answer is that European countries have adopted an “austerity” budget which is throttling growth at the expense of getting borrowing and debt under control.  Keynesians point out that “if only Europe adopted stimulus” their economies could grow again.  Hmmm.

Memories sometimes are so short.

Recalling the 2000’s, Iceland, Ireland, Portugal, Spain, Italy, and of course, Greece followed Wall Street’s lead.  They borrowed and invested.  Their investments did lead to employment and for a few years, life was quite good.  Then the days of reckoning arrived.  It was time to pay back the bankers.

Sustained economic growth comes from wise investments coupled with wise expenditures.  In Europe, most of the countries who got in trouble poured billions into real estate development like new housing.  It offered everyone something.  Jobs all around and new digs for those who signed up.  Soon, however, the bubble burst.  European countries woke up to the unpleasant fact that there were too many homes compared to the number of people who could afford them.  Even worse, it turned out that many who could afford them were dependent upon government jobs.  When these home owners were laid off (due to austerity), even more homes flooded the market.

Free enterprise may be something like bulimia.  There is a naturally biased to over consume or over produce, and then vomit and act as if nothing has ever happened.  Free Enterprise advocates never see a bubble, and when it bursts, advise bankruptcy.  They believe markets will correct.  Most governments, while recognizing this, decide to “soften” the collapse just the same.  In the US we got “too big, to fail” for our bankers.  In Europe, bankers as well as certain large corporate employers received favorable treatment from their governments even when they have participated in some foolish business deals.

So what’s the lesson Europe is teaching?

  • Don’t cut government expenditures to sharply.  Economies which have large segments of government spending must be weaned carefully or risk a sharp contraction overall.
  • Government expenditures aimed at helping the economy must have “sound investment” characteristics.  In other words, the expenditures must anticipate a “pay back”.  The pay back must come in the form of greater tax revenues such as road or port fees, greater VAT from increased manufacture, or wage/income taxes from higher employment.  Most European countries (except Germany) seemed to overlook this.
  • Public welfare payments (including unemployment, food stamps, housing assistance) while necessary for domestic peace must also have components that fosters less dependence in the future.

So now the really big question.

Do you think Congress is up to such a challenge?

The State of the Onion

February 13, 2013

Last evening, rather than Downton Abby, many Americans watched the President give his State of the Union speech.  The speech contained a few memorable lines including a preacher’s plea for strengthening gun controls.  But if one listened for a reasoned and rationale argument for government action, you were in the wrong place.  Last night’s speech was more like a State of the Onion speech where fact lay beneath layers of onion peels.

Medicare and Medicaid.  Over half the current deficit is due to Medicare and Medicaid expenditures that exceed the wage roll taxes the government collects.  One might be quick to conclude we need only increase taxes, or if you oppose taxes, need only cut benefits in order to eliminate the Medicare/Medicaid piece of the deficit.

Hmmm.  Keep peeling.

The US health care delivery system assigns insurance cost based upon “pool” risk.  Younger and more healthy people present less risk to insurers and therefore receive lower rates.  And…  You are catching on, older people and those unemployed represent greater risk and accordingly cost more to insure.  Medicare and Medicaid must cover the more risky (health care cost-wise) and more costly Americans.

Hmmm.   Peel again.

The entire US health care delivery system is the most expensive in the world.  Our system in comparison to other modern countries, is on average twice as expensive per capita, does not cover everyone, and delivers health outcomes that are mediocre.

The fight over Medicare and Medicaid is simply the wrong fight.  The real issue is buried, it’s our overall health care system.

Here is another example.

Jobs, the Middle Class and the Minimum Wage. If we think back to a time when “things were good”, we are probably talking about the 50’s, 60’s, and 70’s.  America’s industries were strong, unions and their members prospered, and optimism prevailed.  No surprise that today things don’t feel the same because things are not the same.

Hmmm. So what?

The world has become much more competitive.  Goods and services can be produced around the world at the highest quality standards and offered based upon the local prevailing wage.  For jobs to remain in the US, the goods or services must be in total cheaper to produce here than in a foreign country.  So government officials can talk all they want about “growing jobs” but unless the net cost to produce an athletic shoe, or a toaster, or suit, or a car is equal to or less, jobs will continue to migrate away from the US.  This is how it has always been.  In the past, however, there were competitive reason to prefer US manufacture.  Times have changed.

So is all lost?   Let’s peel.

Less expensive energy, a highly educated and skilled work force, and an efficient and effective infrastructure could tilt the balance in favor of repatriating jobs, creating new ones, and not losing the new ones that come along.

What about guns?

Guns.  The president spoke about taking bold action to prevent (or lessen) the number of senseless violent acts involving guns.  He held up the Sandy Hook Elementary School as a rallying point.  But would any of his proposals changed that outcome?

The sad truth is no.  Our 2nd Amendment allows Americans to own fire arms.  Sandy Hook could have been prevented only if all fire arms were confiscated.  That’s not going to happen and probably should not happen even if it could.

So let’s do nothing?

At the same time, it makes no sense to have some gun purchasers checked against a national register and others not.  It makes little sense that sportsmen or gun hobbyists need high capacity magazine clips.  It is highly questionable why military style weapons should be in anyones hands other than law enforcement authorities.  The 2nd Amendment speaks to the right to bear arms at a time when muskets were the norm.  Which fire arms meet the test of reasonableness in today’s society is a legitimate question.

What else matters?

Mental health, gang violence, and domestic violence are three factors which underscore the risks our country has taken with free and easy access to fire arms.  While the best answer is not clear, doing nothing is clearly wrong and will be followed by more of the same.  Enacting the President’s proposals will not prevent all misuse of fire arms.

The open question is would the President’s proposals be a step in the right direction, and if not, why not?

Beneath the great questions the State of the Union spoke to, after removing several layers, there is a call for thoughtful analysis and comprehensive solutions.  Do you think anyone heard that message?

Peeling away one layer is not the answer either, but it is certainly better than doing nothing, but not by much.

The President gave us some “one layer” ideas.  Marco Rubio, the Republican response speaker, spoke to a lot of doing nothing.  What are reasonable people to think?

 

Economic Growth That Both Parties Made Possible?

December 10, 2012

Employment numbers released Friday showed about 140,000 new jobs were created.  While not a number to be confused with a run away economy, it never the less shows a positive state of affairs.  So, are the Democrats and President Obama responsible?

No, not fully.  The irony is that both parties are responsible.

The GOP has backed wrong headed policies from the get go.  Its hands off, no interference approach would surely have sent the economy into a much deeper recession, if not a depression.  The Democrats, on the other hand, would have panicked when the recession took on its “wide U-shape” instead of the wished for “narrow V-shape” recovery.  Their answer would have undoubtably been to throw more money (borrowed of course) at the recession.  Fortunately, the Washington gridlocked prevented more stimulus and the only course available was to “stay the course”.

Mitt Romney told all who would listen he understood how to create jobs and that President Obama has been a failure.  In hindsight it is easy to see now that these claim were off the mark.  The 2008 recession began when the housing bubble burst and at the same time, the financial sector imploded.  How can anyone fix something unless they know why it is broken?

Building too many houses and trying to sell them to people who cannot afford them has happened before and will undoubtably happen again.  This is an easy to understand problem and with patience, an easy to fix one.

An imploded financial sector is much more opaque.  Clearly financial institutions took too much risk.  But that is not all.  These big banks and investment took an enormous holiday from ethics and fiduciary responsibility.  In essence, they went morally bankrupt.

We all know greed is a human condition and bankers are humans.  If we had returned to 2005-7 conditions quickly, the financial houses would have forgotten their extravagances and resumed business as normal.  Banks would have pumped up consumer and business debt while recording high profits without any reflections.  And this group of money lenders and investors would have shamelessly pushed for more favorable regulations.

The slow recovery, however, has encouraged economic growth on a much broader basis than housing and banking profits.  Although this will take time, the results should make the US far more competitive globally.

It would be nice to assign some form of brilliance to the Obama Administration for engineering a slow recovery.  It would be nice but it would be incorrect.  After the 2010 election, President Obama lacked the Congressional majorities he needed to steer the economic recovery.  He could veto and block legislation he didn’t like but he couldn’t push through policies he favored.  Gridlock.

The US economy does not exist on an island.  It is part of a global marketplace.  When the US does well globally, conditions are ripe for a knock on positive outcome domestically.  It is the global engine that drives the domestic engine.

Since ideology of both parties tends towards extremes, the long term prospects for the US economy will benefit the most from continued gridlock.  The gridlock will produce a deficit reduction plan but not much else.  And given the realities of politics, that’s probably enough.

Of course, both parties could gravitate towards the center and moderate, data driven policy making.  There would be no stopping American, then.  And just as likely, pigs could fly.

Branding

November 8, 2012

In the aftermath of President Obama’s reelection, there is much discussion about the GOP’s need to “rebrand” itself.  Even though the vote was close, political sages say national demographic shifts are moving voters away from the GOP.  Next time could be even worse.

Rebranding is an interesting notion.  What do they mean?  Do they think the GOP should try a new color and replace the red State image?  Do they mean the GOP should adopt the naked Etch-A-Sketch approach Mitt Romney used?  (You know, just announce one day that you are for everything moderate and in the middle regardless of whether you have any intention of governing that way.)  Or do they mean change nothing and just spend more money to convince voters?

If rebranding means any of these, the GOP is in for more disappointment.  The country has and is continuing to change.  Social media coupled with the visual information age are distributing raw information more rapidly and broadly than ever before.  It is almost impossible for any politician to say something in public and not have those words spread on Facebook or Twitter, or repeated 1000’s of times on 7/24 cable news.  While the general public may not understand the many layers of any issue, they can recognize hypocrisy and they can detect policies that are not in their best interest.

The GOP brand needs, instead, to rethink what it stands for.  Is it the party of the rich?  Is it the party of fundamentalist religious groups?  Is it the “boot straps” party?

You can’t be successful calling for small government when to make it smaller means taking Medicare (health care) and Social Security away from the most vulnerable.  You can’t be successful calling for small government and then telling women what they can and cannot do with their bodies.  You can’t be successful calling for small government and demanding more defense spending.

There may very well be a place in politics for single issue parties, for example one that represents religious freedom issues.  A number of GOP candidates as well as Mitt Romney called for government to intervene in issues surrounding a woman’s right to choose.  Exit polls, however, indicate that 50% of catholic women voted for President Obama despite the Catholic Church hierarchy’s call for no birth control or abortions, full stop.  If that is the direction the GOP thinks is in its best interest, they may sleep better at night but they will continue to loose national political influence.

A new GOP brand might be possible if the Republican Party developed policies and programs to ensure the successful implementation of a few core issues.  Instead of trying to represent churches, the NRA, Wall Street, and the very wealthy, the GOP should begin to talk about balanced policies which were aimed at growing the economy, enhancing America’s global competitiveness, and enriching the everyday quality of life for ALL Americans.  Let the extreme factions of the current GOP go their own ways.  Cut back if necessary, but come back strong through focus on a few important issues.

That might produce a really interesting new brand.