Saturday, February 25, 2012

An economy based on predatory capitalism rips off consumers

Welcome to the new, zero sum economy of Predatory Capitalism where companies are trying to squeeze the consumer dry.

We are living in a low growth economy. The US GDP growth for the year will be about 2-3% which is pretty good for a developed country. However, companies and governments, are under enormous pressure to growth faster than the GDP. The only way to grow faster than the GDP is to take money from someone else's pot. And that pot is the consumers wallet. Companies who are stronger in the marketplace (define as more bargaining power) take from the weaker. An in this case, the weaker are you and I.

We are entering a low-growth, low technical change era. There are fewer market disruptions, new inventions and technology changes. Effectively, everyone has a TV, Cell Phone, Car and place to live. Sure, things could be better, but for 95% of the people they have enough. So, our job now is to do more with less. We must deliver the same level of material wealth with less money, energy, consumption and waste. Unfortunately this does not fit the plans of company stockholders and managers who are rewarded for high growth.

The slow growth economy has become a zero-sum game for companies and consumers. For a company to grow faster than 3% you you receive less than 3% value in exchange. For me to win, you must lose. And this has led to an new era of predatory capitalism. As times get harder, we see companies exploiting consumer weakness (defined as lack of barging power) in the marketplace. The stronger taking more from the weaker. In the past, we might have seen government, reset the rules, to limit the abuses. But now many regulatory institutions are captive of the industries they regulate.

I believe the US is particularly vulnarable to predatory capitalism for several reasons. We are a big country, We have lots of anonymous transaction, regulatory power is spread out, we have a winner-take all mentality (losers deserve to lose), and our civil bonds are weaker than other countries.

We also believe, here in the US, in a less regulated, more free-market approach to capitalism. Many of us have a believe that less governement interference and regulation are better.

Normally, I would call for so sort of activism or government intervention, I have been so beaten down by the right wing, that my opinion is: Suck it up and let nature run it's course. Don't do business with companies that exploit you.

Friday, February 24, 2012

243,000 new jobs created in January; Black unemployment dropped to 13.6%

January 2012 BLS Unemployment Report Review

The unemployment rate dropped nearly half a percent to 8.3% as 243,000 (257,000 private) new jobs were created. Job growth was spread across all sectors of the economy except in the government, information and finance areas. In a very hopeful sign, construction jobs increased by 21,000 jobs and manufacturing increased by 50,000 positions.

The National unemployment rate dropped to 8.3% as job market participation rates plummeted.

Black unemployment dropped to 13.6% which is more than 2% below the rate for 15.8% in December. The drop is attributed to people dropping out of the labor force and more blacks finding jobs. About 477,000 blacks found jobs last month. The black teenage unemployment rate was measured at 38%.

The general unemployment rate declined to 8.3% and so did the labor force participation rate which slid -0.3% to 63.7%. The white unemployment rate was 7.4%, the Hispanic rate was 10.5% and the black rate was 13.6%.

The decrease in the employment rate boosted the stock market and president Obama’s election chances. The stock market index is at the highest point since 2008. In political news, the house and senate extended the payroll tax cut, the financial markets reacted to record corporate profits and weekly unemployment claims were below 350,000.

The figures reported for January 2012 include new population figures. The population value reported by the BLS grew by 1.7 million but 1.5 million was due new census data. The estimate the non-institutional population increased by 175,000. Similarly, the civilian labor force increased by 250,000 persons. The long-term unemployed stayed at the 5.5 million figure which represents 43% of the unemployed.

Non-Farm Payrolls

If we look at the establishment data we see that hiring was strong across all areas of the economy: 243,000 jobs added. Let break down the numbers.

Retail employment added 11K positions post Christmas. Leisure and hospitality added 44,000 (33K in food service). And the always solid healthcare industry added 30,000 spots. Information employment decrease by -11,000 spots due to volitility in the movie and record industry. IT stayed flag at 240,000 jobs. Amazingly, non-farm payrolls were revised in November upward by +57K.

Average work week was unchanged at 34.5 hours and wages added $0.04 cents in January following a $0.02 raise in December.

ADP reported an increase in payrolls of 170,000 positions.

The Monster Employment Index moved down to 133 index units (what the heck is that) from 140 in December. Hiring was up 9% compared to same month last year but down 2% for the month. Monster blamed the post Christmas slowdown.

Thursday, February 23, 2012

Jobs hole since beginning of recession

The US economy has lost more than 8 million jobs during the recession. We have started to replace those jobs. But the quality and pay of the replacement jobs is a huge concern. Middle class wages have been frozen since the 1980's.

The chart below illustrates the "jobs hole" during the recssion which started in December 2007. The monthly Non Farm Payroll increase or decrease is shown a a blue bar chart and the cumulative jobs losses are displayed as a red line. Roughly three million new jobs have been created since the bottom of the "employment" recession in December 2009. The NBER dated the end of the "GDP" recession as June 2009.

Another common question to ask is when will the lost jobs return. Well they won't. They will be replaced with other jobs. We figure, using a simple forecasting model and data from 2009 to 2011, the US will be even on the jobs front by the year 2017.

The chart below illustrates the jobs deficit will end in 2017 when the jobs deficit will be erased.

Monday, February 13, 2012

Black unemployment rate drops more than 2 points to 13.6 percent

The black unempolyment rate dropped from from 15.8 percent to 13.6 percent.

Why ? Two reasons: 1) It's all about how you count the unemployed and 2) bad data sampling and measuring.

If we look at the raw numbers in the black population, they grew by 440 thousand. Yet the black labor force grew by only 96K. So an additional 345K people were dropped from the labor pool. Meanwhile an additional 477 thousand black workers found jobs. So a smaller labor force increase and big job growth mean the black unemployment rate gets a huge drop.

Second, a 2.2 percent change is huge in the statistical world. It means that either the data change randomly by a large amount or the measuring is not that good. If the sample size of blacks is small enough then even a little change would be reflected in the statistics.

Hidden behind the number are 11 million blacks that want to participate in the labor force but have dropped out. They are no longer counted.

Sunday, February 12, 2012

Military job cuts will have a major impact on the economy

I just read that the US military establishment could be facing a $1 Trillion dollar cut over 10 years rather than just $500 billion. The cuts have been need for a long time. The wars in Iraq and Afghanistan were a poor use of the countries resources. We have NO enemies any more. The were no war-level conflicts around the globe. And the US military is 10 times the size of our closest competitor. So the cuts are long over due.

We fully support the budget cuts of the military. We, here at the EBE, have long derided the military as a make work, jobs creation program for folks with few alternatives. Typical military recruits are high school educated, poor and minority. We could face some serious upheaval if those 100,00 jobs are eliminated.

We just worry about the impact of dumping 100,000 low skilled people on the job market. They better have a plan to create some jobs to replace all the mikitary jobs that get eliminated.

ECB's focus on price stablity is the wrong issue

I had to go though the European Central Bank (ECB) website for an issue. ECB link is here.

Found what I was looking for, the AWM model, but what I noticed was what was missing. There is nothing on unemployment. Sure they gather country employment, unemployment and population data, but other than some compilation reports, there is no mention of unemployment.

I guess they are happy with their niche.

Mortgage settlement is a joke.

Saturday, February 11, 2012

Help ! Looking for conservative solutions to unemployment

I am a pretty progressive person with regard to economic philosophy: I define my philosophy has pragmatic progressive. But I do like to balance it out and listen to conservative points of view. Some of their ideas have merit.

So I went looking for conservative solutions to the unemployment crisis. And I kept looking and looking and looking and looking. (We all saw the joke coming). The closest they come to any kind of plan or idea is to propose lowering taxes or cutting government regulations. There is no specific conservative plan to combat high unemployment. Reducing black unemployment is completely beyond their comprehension.

So, if any has any conservative tips, ideas or web links, please pass them along.

Friday, February 10, 2012

French minimum wage: SMIC

France has an interesting minimum wage policy which is set by employers, worker institutions and the government. It is indexed to inflation and worker productivity. It is currently about $12 dollars US. The minimum wage is not paid to everyone with students and starting employee making less.

Many credit the high minimum wage to France's lower income inequality compared to the United States.

Sunday, February 5, 2012

UK Corporate Profits vs Employee Compensation

Last month we examined corporate profits and employee compensation in the United States. This month we will look at corporate profits (Gross Operating Surplus) and employee compensation (COE) in the United Kingdom: Britain, Scotland, Wales and Northern Ireland.

All of the figures are from the income side of the gross domestic product of the United Kingdom.

The following chart shows the average ratio of employee compensation to corporate profits. The ratio has stayed around 2:1 meaning two thirds of GDP goes to pay salaries and employee benefits and one third goes to corporate profits.

It is interesting to note the ratio for the UK has been relatively stable for the period of the chart. The US chart show a decline in the ratio.

Saturday, February 4, 2012

Do not try this at home! UK GDP growth slow to recover

United Kingdom GDP has been shrinking or flat since Q1 2008.

We like to complain here in the US about the economy. But the recession could have been a lot worse. Take the example of Britain, Wales, Scotland and Northern Ireland: collectively the United Kingdom. Rather than apply some stimulus during the recession, they decided to cut back. The Conservative led government believed cutting the debt would lead to a boost in business confidence and a confidence led recovery. Boy where they wrong.

The British economy has been shrinking or flat since the first quarter of 2008. In one 12 month period their economy shrink by more than -7%. They also had a double dip of negative growth. Currently growth is flat.. That is four straight years of recessionary impact.

This chart shows the current UK recession against the longer term GDP trend from 1955. You can see a severe drop since 2007.

A better example is the quarter to quarter growth since 1997. You can see five quarters of negative growth followed by eight quarters of growth below 0.5%. The most recent quarter estimate was a negative -0.2% in the 3rd quarter of 2011.

Luckily, here in the US we spent $787 on stimulus. China, France, Japan and Germany also had spending increases. It looks like we all made a great policy choice that saved millions of jobs.

Friday, February 3, 2012

Transaction taxes are good

The idea of a financial transaction tax has been around for about 40 years. It is a good idea right now because financial excess caused the recent recession and governments need the money.

A financial transaction tax is a good idea for a lot of reasons. It will raise revenue, it discourages speculation and short term trading, and it promote invest in non-financial assets like factories. Existing global businesses rarely make a wholesale move like people believe, instead they internally invest based on resources(people), facilities and infrastructure, location, executive accommodation and total taxes. When they want a taxes break they set-up a shell company in Switzerland, Jersey or the Cayman Islands. Innovative businesses ignore taxes all together. They follow universities and innovation clusters. California has some of the highest living costs in the world.

So Tobin taxes are one tool of society's effort to regulate financial corporations.

Wednesday, February 1, 2012

Jobs as an output. The Arts !!!

Jobs are an overlooked output in many economic models

Traditional economic models of production may be need to be re-written in a job scarce economy. Most models take the input of labor, capital, land, and technology and produce a unit of goods or service as output. Little or nothing is said about how the goods are produced. Or the mix of inputs to produce items. All input are assumed fungableable and can be traded off.

But it turns out the volume and quality of inputs has a greater impact on the structure of society.

We may want to adapt policies that encourage the use of higer priced labor while reducing inputs such as kapital, land and technology. What would these industries and business look like. They look like museums, universities and arts institutions.

Blog Archive