Wednesday, September 28, 2011

The root of all evil is: Lack of Demand

Just about all economists agree that lack of demand is causing the economic slowdown.

The recession has done a small amount of good. It has clarified economic theory for a lot of economists that were on the fence. You don't hear to many efficent market theorist discussing how the economy will correct itself automatically these days. Now, in general, most economist area agree the problem is lack of demand. They also agree the US economy needs some stimulus.

Economic theory also tells us that you can stimulate the economy two ways. You can increase demand though monetary (interest rate and money supply changes) and fiscal (government spending) policy. Fiscal policy is either direct spending or investments or incentives (subsidies and tax policies) to encourage private spending. With interest rates effectively at zero for the next two years (monetary policy) only government spending remains(fiscal).

Let's look more closely at the three places where this lack of demand comes from. One, corporations and the rich are sitting on large piles of cash. They can no longer find investments with returns equal to historic returns. So they are sitting this one out. Second, the poor and middle class consumer is tapped out. The middle class has lost huge amounts of home equity. They nervous about their employment situation. The fear of unemployment has led consumers to cut spending in favor of paying down debts and savings. And the third source of low demand is steadily job cuts in government.

So basically, the poor and middle class, the engines of the consumer economy, have cut spending. The Obama stimulus helped for a bit, but was not enough. You can see the temporary spike on the chart below.

An obvious solution is to take the money from the people or companies who have more money than they need. They are not spending or investing. They are sitting on it. The money could be given to the government or people who do need it and will spend it.

Here is a quick graph of government employment.

Friday, September 23, 2011

Obama Debt plan in 30 Seconds

On Monday, September 19th, president Obama released a proposal to reduce the United States federal government debt.

President Obama proposed a $3 trillion dollar deficit reduction package over 10-years. The plan included $1.5 Trillion in new taxes. It would reduce the Medicare and Medicaid spending by $600 billion over the same time period. And it would save $1 Trillion by withdrawing troops from Iraq and Afghanistan. The debt reduction would be used to fund his $450 billion dollar jobs plan.

The meat of the presidents proposal is to let the Bush tax cuts expire for the wealthy, limit deductions by upper income tax payers, and end corporate tax loopholes and tax breaks.

The plan include $400 billion in savings from reduce interest payments on debt.

Wednesday, September 21, 2011

Roland Fryer wins MacArthur Foundation Grant

Roland Fryer, a Black economist at Harvard, has won a $500,000 MacArthur Foundation grant. His research is focused on studying the Black White education achievement gap.

Dr. Fryer is written a large number of papers and was the youngest Black person to receive tenure at Harvard. He and Steven Levitt researched the discriminatory effects of Black sounding names.

Saturday, September 10, 2011

Canada quietly moved ahead. Service Canada Portal

Canada quietly moves ahead.

If you really want to see what a 21st century country looks like check out Canada. Everything seems to be going well for the Canadians (not the Habs).

If you want to see what a reasonably well run country and government look like, then check out Canada. They seem to be doing everything right these days. No banking crisis, universal healthcare, excellent schools(PISA rankings), reasonably good government and even rap-stars like Drake.

There portal is amazing and easy to understand. Here.

I think it is time for Americans to eat some humble pie and look north.

Thursday, September 8, 2011

Obama proposes $450 billion stimulus plan to generate jobs

A summary of President Obama's speech on Jobs and the Economy

President Obama proposed a nearly $447 billion dollar jobs plan split evenly between tax cuts and additional government spending. He challenged the house Republicans to pass the legislation to create jobs. His strongest line was to call congress a circus.

The proposed tax cuts include:

1) incentives for hiring new workers, raising wages or hiring veterans,
2) continued accelerated depreciation for small business investments in 2012,
3) payroll tax cuts for small businesses and employees,
4) infrastructure investments in transportation to increase construction spending,
5) summer jobs programs for low-income youth,
6) and extends unemployment insurance for an additional year

He did not saying anything about home mortgage relief.

The president asked the deficit reduction taskforce to reduce spending by an additional $450 billion to complete pay for the program. The president will release a deficit reduction plan to cover the cost of the jobs bill.


Wednesday, September 7, 2011

Romney's plan is a conservative grab bag

Mitt Romney's economic plan is a collection of standard middle ground Republican proposal. Not much new but definitely nothing too right-wing either.

1) Reduce the corporate income tax to 25%
2) Sign free trade agreements with Columbia, Panama and South Korea
3) Expanding US energy production and off shore drilling
4) Cut domestic and non-security spending
5) Try to stop Obama's health care legislation
6) Sanction China for unfair trading practices.

Only the proposal to go after China is new or interesting. The Evil Black Economist is a proponent of "fair" trade not free trade.

Monday, September 5, 2011

August job report shows NO new jobs; slow growth continues

August unemployment report shows zero new jobs. Black unemployment rises to 16.7%; National rate 9.1%

The August unemployment report was the worst this year. No new jobs were created. There was wide spread weakness across many industrial sectors. Only healthcare showed positive growth. The numbers were also reduced by -48,000 by the Verizon strike. Many economists and media watchers are concerned about a double dip recession. The last period of negative job growth occurred in July, 2010.

Below is a chart of the Major Category changes in employment.

A further review of the minor job creation categories shows the effect of the Verizon strike.

The national unemployment rate stayed to 9.1% and the Black unemployment rate rose to 16.7%. Economists routinely predict 80,000 to 100,000 new jobs. The stock market fell in a predictable fashion.

Private non farm payroll increased +17,000 which was off set by a drop of -17,000 government workers. Employment increased in business services by +28,000 while healthcare went up by +34,000. Manufacturing lost -3,000. Construction also lost -5K. The biggest drop was in local government jobs which fell by -17,000.

Black Unemployment Up Again

Black unemployment increased 1/2 a percentage point to 16.7%. The last time the Black Rate was was that high was in Jan 1984. That is 25 years ago. In Jan 2007, the rate was 7.9 percent. However, the rate was driven up by an additional 348,000 Black people joining the labor force.

About 2.99 million Black people remained unemployed in August, 2011. There was some good news, the Black labor force participation rate increased to 61.5%. The number of Blacks holding jobs grew by 155,000.

The long-term unemployed (out of work for more than 26 weeks) stood at 6.03 million. The long term unemployed are 42.9% of the total unemployed.

The number of part-time workers for economic reasons was 8.8 Million. These are people who would like full-time work but cannot find it. Marginally attached workers stayed around 2.6 million. These are people who have looked for work in the past 12 month but are not counted as part of the labor force.

The number of discouraged workers dropped year-to-year. Last June there were 1.6 million. Currently there are 977,000 discouraged. Discouraged workers have stopped looking for work because they believe no work is available for their skills.

Establishment Data

Non farm Payrolls showed no new jobs. The private sector added only 17,000 jobs which were offset by a -17,000 drop in government jobs Retail trade stores drop 7800 jobs business and professional services added 28,000. Health care and education services added +34,000 and manufacturing shrank by -3,000.

In other bad news, Temporary Help Services(THS) increased by 4700 jobs. THS is a closely watched, bell-weather category. Temp help is a quick, but expensive way, for employers to add staff. When the economy is grow temp help shrinks as workers are converted to permanent employees.

Construction was down -5,000 jobs. Construction employment is also closely watched as an economic indicator. Construction employment has been depressed since the collapse of the housing “bubble” in 2007.

And finally some downward revisions of prior month payrolls. The June new job creation number was revised down from +46,000 to *20,000 and July dropped from *117,000 to +85,000.

ADP reported 91,000 new jobs were added, a very low number for ADP.

The monster help wanted index was at 146 , the highest level of demand since October 2008.

The weekly initial unemployment claims was at 427,00 for the week ending July 7th, 2011, still above 400,000 below which the US economy is considered to be adding jobs.


Sunday, September 4, 2011

Jobs will return by 2017!

The United States will return to pre-recession jobs levels around 2017 at the current growth rate.

When will the jobs lost during the great recession return to their December 2007 peak ? Basic forecasting techniques (line-fitting) tell us the answer: between 2016 and 2018 based on current Non Farm Payroll (NFP) growth statistics.

The simplified analysis was based on data from the bottom of the recession (Dec 2009) to the current jobs report (Aug 2011). We add approximately 80 thousands jobs on average each month.

At that current rate, we would reach 2007 job levels around 2017. Merry Christmas.

Saturday, September 3, 2011

Where does the US rank among International high school students ?

The Organization for Economic Cooperation and Development (the preeminent european development organization) has released it's international student assessment results in education. They looked at reading, math and science. Here. The United States is fairly middle of the pack: Above average in reading, in the middle in math and below average in science.

However, I must say the quality of publication, reseach, writing and statistical analysis is outstanding. If you really want to understand the drivers of student performance you have to read some of this stuff. It also show how difficult it is to make changes in education.

The upshot for the US is they should recruit and encourage better quality personnel to become teachers.

The Presidents Job's Speech on jobs: What we want to hear !!!

Next Thursday, September 8th, 2011 president Obama will give one of the most important speeches of his tenure: a national speech on economic issues. The focus is on jobs. We have all felt the effect: We may out of work, stuck in a bad job or know a close friend or relative who is unemployed. We all know the stats: Black unemployment is 16.7%(20% for Black men); national unemployment is 9.1%, inflation adjusted median wages have been stagnant for 20 years.

There are some small to medium sized problems. However making it all worse, for the president, is a group of people who are willing to exploit the tough times for their own ideological or political benefit.

This is the environment the President faces when he gives his speech.

So I give you three views: The speech we would like to hear, the speech we will probably here and a third speech called what actually makes sense.

1) "Today, as your president, I am announcing, with congressional support, a major fiscal policy imitative to put people back to work. When, we have a national underemployment rate of greater than 15% and a minority unemployment higher than 20% in some areas, it is time to act. American cannot waste it most value resource: the potential of it's people.

The initiative will fund short and long-term employment, training and skills development in four critical areas of our economy: improving infrastructure, fixing residential real estate, improving schools and reducing the cost of healthcare. We are going to get the poor and under employed working to build this country.

Coupled with this we are proposing additional revenue increase on upper income individual; a fairer tax system which eliminates corporate tax loop holes and does not reward financial speculation; and reduces spending on the military, social security and medicare. 'Everyone is going to have to pay a little more and get a little less, but the most vulnerable will be protected.' Thank you and God bless america."

2) "Today, my fellow citizens, the US has a little bit of a problem creating jobs. But it is nothing really to worry about. So, we are asking congress to fix the tax code, fund the infrastructure bank, let the bush tax cuts expire, and make the payroll tax cut permanent. We can get through this together but no one has to give anything up. Thank you and God bless america. "

3) "Today, my fellow citizens, the USA faces some small but important and difficult policy choices about our long-term society. Many of the issues are complex and will affect subsequent generations. However, the issues have been faced before, so we have some guide as to how to handle the job crisis.

A) Additional Fiscal stimulus: Fiscal policy does work. Basic economic theory tells us that cutting fiscal policy at the time of recession extends the recession. Now is the time for fiscal stimulus. Government money is not wasted on jobs (wage, benefits, skill development) unless the discounted return is less than the investment. And that is purely the financial view, it does not count important non financial returns (defense, law enforcement, education, R&D). We must spend money on the most job creating areas.

B) Investment: Now is also the time to borrow money for long-term national investments. The world is willing to lend the US money at near zero rates. So any national investment that pays above 0% return is a good deal. One the list would be fixing the residential real estate market, promoting energy efficiency / green energy; transportation spending; education; health-care cost reduction and national R&D.

C) Taxes: A simplified tax code that rewards value added activities like manufacturing, R&D and not financial manipulation and tax avoidance.

D) Government Spending: When the jobs crisis is over the US must look at the huge amount of defense spending, total health care costs and public retirement benefits.

E) Changing the model: My fellow Americans, this one is the most difficult areas to discuss. In order to develop the society we want, we must make some small changes to our economic model to compete in the 21st century. We must return to a time when the US led the world in innovation, made things and paid good wages. We must shift from society based on material consumption to a society based on innovation and service consumption. We must shift from a winner take all model built on financial gamesmanship to model where prosperity is more broadly based. It boils down to how can we make a society that is happy, harmonious, and relative fair for as many people as possible.

I call on the wisdom, intelligence and generosity of the American people to lead this fight. Thank you and God bless america."


Blog Archive