As always in this spot, I am an amateur economist. That means that while I have many college hours of economic study, I am not paid for my economic prognostications. This entry is just questions...
If the economy is so good:
*Why are there so many empty store fronts? There is roughly a half billion square feet of empty space across America. Part of the reason for this is that large corporate stores have displaced many smaller ones. This makes the large chains more profitable, as competition declines. And large companies are merging. An example is Office Depot buying Office Max, why would you need 2 or 3 stores when one will suffice? Another example of a few years back is the Sprint Nextel merger. In the town I live in there were almost 20 stores pre-merger, now there are 10. The largest, like Walmart, will vacate stores to open one down the street. There is very little need of that size space.
*Why is McDonald's, or any fast food, now considered a "career" and requires "fair" or "living" wages? The sad fact is manufacturing has left much of America. In the 1960s, my grandfather was a union organizer for shoe factories. His territory was primarily in Missouri. At that time there were many small towns, with a small to medium size shoe factory. This manufacturing drove the local economy. Now I would ask you when the last time you bought shoes stamped "Made in USA". It's not that Chinese shoes are bad, but now Chinese towns are centering their local economies around a shoe factory, not American towns. Factories were what drove the middle class. Frankly, not everyone can be a CEO, not all can even be a manager. We need jobs that add to the economy, perhaps we need to consider the quality of jobs. Manufacturing is generally more profitable than retail, therefore wages tend to be better as well. A manufacturer can expect to get three times what the raw materials cost him, in other words, if the raw materials of that widget cost $1, then the company will sell widgets for $3. Retailers will buy that $3 widget, mark it up and sell it to the consumer. Most retailers would kill for a gross margin of 50%, or to be able to sell that widget for $6. Out of that $3 in profit comes wages of clerks, utilities in the store, rent of the building (most do not own their own building) and profit for their shareholders, partners or owners. Retail space is generally more expensive than manufacturing space, because of location. You can build a factory in rural areas for much less than urban or suburban areas, where retailers must be to be available to consumers. Retail space needs to be brighter and more appealing than a factory, meaning there is more expense in opening and upkeep of the facility.
*Why are so many people no longer in the job force? And why is there so much underemployment? Workforce participation is at historical lows. This means less people are looking for full time employment. While this number is never zero, the lower it is the better. Low numbers mean there is a smaller pool of qualified workers available for filling specific jobs, which drives up wages. It doesn't take any talent to say "do you want fries with that", it does to be able to use tools and build something. Underemployment is two things, first those working part time instead of full time, and second those working in jobs they are vastly overqualified for.
*Why is the stock market up? I remember seeing the stock market as an indicator of the broader economy. I no longer think that is the case. The stock market is more than ever just a gamble of money. The factors that push the market are seemingly unrelated to the broader economy, except possibly on a global basis. Classic liberals used to say "the rich get richer", the stock market now more than I ever can remember is the outcome of that saying. It is no longer about viability of a company, but how much can be gained and sent to financiers, cut the company up, sell the profit centers and kill off the core and our stock will rise. An example is a story I recently read about Yahoo, Their CEO spun off their stake in Alibaba, an up and coming company. Why, if Alibaba is doing so well, and Yahoo's core is not, would you do this? Would not the profits help you to build back the core? The one time infusion of cash is all that mattered to the people involved with Yahoo, sort of like take the money and run, and if Yahoo dies, so what.
*Why are low oil prices bad? While the margins may remain pretty constant, the gross dollars flowing to the investors drops. Again, it seems like screwed up priorities and short sightedness to me. Low oil can drive the economy, freeing up money to help fill those retail vacancies we talked about earlier. If a family doesn't have to pay at the pump, then perhaps better quality food is bought, or needed house repairs, or just savings. In my opinion, oil has been a primary driver for the sluggish economy in recent years. Now that prices are down, that money can be used for other endeavors, based on capitalism.
*Why is unregulated immigration good? We are a country of immigrants. My family came from Germany and Ireland. I would never want us to completely seal our borders to immigration. That being said, it is important to regulate the flow. It should not be about who gets the voting blocks, but how can our economic system absorb them. To come and be on the streets is not an improvement, where the improvement comes from is freedom to build a new life, and family with economic security. Immigration is not about lowering wages, or should not be. But large Corporations see it as such, that is why both sides favor it overall, because corporations provide them with money to win their next election. This is short sighted in that if wages decrease, so does the ability to buy the products.
*Why is quantitative easing good? Quantitative easing used to be more commonly known as "turning on the printing press". QE increases the money supply as if more banknotes were printed. This devalues our existing money, which causes inflation. The only reason at this point inflation is not going crazy is that wages are depressed, and companies cannot find a way to raise prices. If the economy does take off, watch the inflation rate. Inflation generally favors government, as tax brackets change, the percent take is higher. And without higher taxes, how can government buy votes and get rich? I think it set a record for proposal of new tax when the price of gas dropped precipitously, and I heard it from both sides of the aisle in less than a week.
So what can the common man do? A group of commoners started this country over 200 years ago, perhaps there will be a group to move it in the right direction. Thomas Jefferson said that a little revolution is a good thing. Revolution does not have to be war, but rather cleaning house (or Senate) of those that are not in it for the greater glory of our experiment. Maybe, just maybe the turmoil of late like Ferguson Missouri or New York City is just a much a symptom of our economic morass as anything real. After all the poor are the first to really feel our economic problems, followed by the middle class, and the rich is relatively protected. It should not be tax the rich, but rather shun those that are our modern robber barons. Pay attention to what we buy, where it was made. Reward those companies that help or local economies. Take back our manufacturing by buying stuff made here. If you find a quality American made product, send the company a thank you email. If we buy shoes made here in greater percentages to those made "there", more companies will manufacture here, to get the advantages. Who knows, maybe us commoners have more power than we realize.
Spend Wisely!
Saturday, January 31, 2015
Monday, July 28, 2014
Decission Making
While this post is more of a personal decision making process for an election coming up in a week. It does have economic undertones. So let's just dive right in.
The ballot measure is one that on it's face seems to be a no brainer. It is a constitutional amendment in my home state of Missouri. Amendment 7 is for improving roads. It is a 3/4 percent sales tax required to be spent on road and bridges. The TV ads spout recommendations from first responders, and I admit, our roads do need work, but then where is there perfect roads? .075 cents doesn't seem like a lot for each person, but when you look at what we pay sales tax on, it will take a bite out of disposable income. The real question is whether this tax will improve Missouri's economy. And whether it will do what it is supposed to, improve roads.
In 1984, Missouri started its state lottery. Leading up to the vote to authorize it, it was said that ALL profits from the lottery would go to education. And it did. However, prior to the lottery, education was appropriated through the general fund. Once the lottery was contributing, those general funds dried up. Over the last 5 years, according to the Columbia Missourian, Missouri ranks 49 in education spending. This is a bit misleading, since a lot of spending is done locally through property taxes. The point is, if this measure succeeds, will other money, not legally required to go to roads, dry up? We will be paying higher over all taxes, but where will that old money go?
Missouri is a right leaning state, in fact they cut income taxes recently. Outside of the St. Louis and Kansas City Metro areas, the state is extremely conservative. The legislature is controlled by Republicans. We have a Democrat Governor. Regardless of party, though, politicians have to have other peoples money in order to spend it on important things, unimportant things, and things that will get them reelected.
That is why normally I oppose any tax increases. It is sort of like giving an addict drugs. Over my lifetime, Missouri sales tax has increased from .007% to .425%, municipalities also have taxes that vary but this would push many over 8%, and while there are more roads now than then, inflation would bring in much more money now than then, even if the rate remained unchanged. The rate, however, is up 98%. And the population has increased drastically in that time as well. The state's budget has grown exponentially. I understand why there may be a need for additional taxes, but how much is too much?
In this case, where there is very little opposition, there is limited information on possible draw backs of the proposal. So all we have to use is previous examples, like the lottery. Will this mean in a couple decades, Missouri will be 49 in road maintenance? And while the money must be used for roads, will that mean the politicians can "make a deal" with large corporations?
So what to do? How to decide. Let me know in the comments what you think.
Spend Wisely!
The ballot measure is one that on it's face seems to be a no brainer. It is a constitutional amendment in my home state of Missouri. Amendment 7 is for improving roads. It is a 3/4 percent sales tax required to be spent on road and bridges. The TV ads spout recommendations from first responders, and I admit, our roads do need work, but then where is there perfect roads? .075 cents doesn't seem like a lot for each person, but when you look at what we pay sales tax on, it will take a bite out of disposable income. The real question is whether this tax will improve Missouri's economy. And whether it will do what it is supposed to, improve roads.
In 1984, Missouri started its state lottery. Leading up to the vote to authorize it, it was said that ALL profits from the lottery would go to education. And it did. However, prior to the lottery, education was appropriated through the general fund. Once the lottery was contributing, those general funds dried up. Over the last 5 years, according to the Columbia Missourian, Missouri ranks 49 in education spending. This is a bit misleading, since a lot of spending is done locally through property taxes. The point is, if this measure succeeds, will other money, not legally required to go to roads, dry up? We will be paying higher over all taxes, but where will that old money go?
Missouri is a right leaning state, in fact they cut income taxes recently. Outside of the St. Louis and Kansas City Metro areas, the state is extremely conservative. The legislature is controlled by Republicans. We have a Democrat Governor. Regardless of party, though, politicians have to have other peoples money in order to spend it on important things, unimportant things, and things that will get them reelected.
That is why normally I oppose any tax increases. It is sort of like giving an addict drugs. Over my lifetime, Missouri sales tax has increased from .007% to .425%, municipalities also have taxes that vary but this would push many over 8%, and while there are more roads now than then, inflation would bring in much more money now than then, even if the rate remained unchanged. The rate, however, is up 98%. And the population has increased drastically in that time as well. The state's budget has grown exponentially. I understand why there may be a need for additional taxes, but how much is too much?
In this case, where there is very little opposition, there is limited information on possible draw backs of the proposal. So all we have to use is previous examples, like the lottery. Will this mean in a couple decades, Missouri will be 49 in road maintenance? And while the money must be used for roads, will that mean the politicians can "make a deal" with large corporations?
So what to do? How to decide. Let me know in the comments what you think.
Spend Wisely!
Thursday, May 29, 2014
Supply & Demand and the Death of the Middle Class
Wow my longest title! Today we will explore one of the most basic economic terms, supply and demand.
The more there is of something, the less it is valued. That is why gold, silver, diamonds, and other things maintain their value. They are hard to get to, therefore they cost more than say salt, which is easy and extremely plentiful. As an example, in the former Soviet Union, bread was sometimes scarce. We saw pictures of empty supermarkets. A black market would grow up around these times selling bread at above what it is worth at the official store. We see supply and demand all over. The price of your house, gasoline, even electricity prices are priced through supply and demand.
When electricity is produced, it has a short shelf life. There are various means to generate it. Oil, gas, coal, water, solar, wind and nuclear are ways to generate it. When supplies are plentiful, prices stabilize, or go down. Many of the generating companies try to make sure that supply is balanced to demand, so that they can make a profit. The same with OPEC, they balance their production to maintain profit, something that didn't happen before their founding. Today, electricity is joining that group of artificially high products, even though it has never been cheaper. As the environmentalists try to kill coal plants, producers are not building newer plants. This will push prices up. Some of this is because of the cost of new plants, which have to be paid for by profits. Also, new coal plants are much cheaper than nuclear, much more reliable than wind or solar or water, and fuel is cheaper than oil. Some plants could last longer, they are being artificially closed because of government regulation.
Supply and demand also affect labor. The more people there are looking for work, the lower the pay that needs to be offered to find workers. That is one reason, in the "global" economy, that jobs are leaving the first world countries like the US or Europe, and relocating to countries with bigger populations and lower standards of living like India or China. Immigration also plays a role here at home. The more immigrants, the lower the wages. Even if immigrants take the least paying jobs, it trickles up to the very highest paying jobs. Governments should try to manage immigration in a way that the economy keeps up with the influx. People vote with their feet, they always have, whether it is to head west, or to cross borders, people will go where they believe they can prosper. Some thought that by helping the Mexicans grow their economy through free trade, then they would not cross the border illegally, and that is true to a point. The jobs that went there through NAFTA were lost to the US and that is the rub. Wages in Mexico are substantially less than the US. The average Mexican worker in Mexico earns a little better $6,000. At US minimum wage that more than doubles to over $15,000. That is reason enough to risk crossing the border.
Minimum wage has not increased in a long time. the reason is there are enough people willing to work for minimum wage, than there are people demanding it go up. So politically, there is no advantage to fighting for an increase. Of course, some pay lip service to it, especially when there is a fast food protest, but it quickly goes away. So illegal immigration increases the supply of labor, which brings down the prices companies pay for employees. Maybe that is why the US Chamber of Commerce wants amnesty? And lower income people are more dependent on government programs, is that why Democrats like it?
We must manage immigration, while it is nice to say all can come, it needs to be managed so as not to destroy our middle class. The economy will grow to meet the needs of all. However, if too many come in too quickly, the imbalance will cause economic hardship on all. Only through legal immigration can we manage the influx, and make sure our middle class are not destroyed. After all, is it not better to earn our minimum wage, or Mexico's median wage?
Spend Wisely
The more there is of something, the less it is valued. That is why gold, silver, diamonds, and other things maintain their value. They are hard to get to, therefore they cost more than say salt, which is easy and extremely plentiful. As an example, in the former Soviet Union, bread was sometimes scarce. We saw pictures of empty supermarkets. A black market would grow up around these times selling bread at above what it is worth at the official store. We see supply and demand all over. The price of your house, gasoline, even electricity prices are priced through supply and demand.
When electricity is produced, it has a short shelf life. There are various means to generate it. Oil, gas, coal, water, solar, wind and nuclear are ways to generate it. When supplies are plentiful, prices stabilize, or go down. Many of the generating companies try to make sure that supply is balanced to demand, so that they can make a profit. The same with OPEC, they balance their production to maintain profit, something that didn't happen before their founding. Today, electricity is joining that group of artificially high products, even though it has never been cheaper. As the environmentalists try to kill coal plants, producers are not building newer plants. This will push prices up. Some of this is because of the cost of new plants, which have to be paid for by profits. Also, new coal plants are much cheaper than nuclear, much more reliable than wind or solar or water, and fuel is cheaper than oil. Some plants could last longer, they are being artificially closed because of government regulation.
Supply and demand also affect labor. The more people there are looking for work, the lower the pay that needs to be offered to find workers. That is one reason, in the "global" economy, that jobs are leaving the first world countries like the US or Europe, and relocating to countries with bigger populations and lower standards of living like India or China. Immigration also plays a role here at home. The more immigrants, the lower the wages. Even if immigrants take the least paying jobs, it trickles up to the very highest paying jobs. Governments should try to manage immigration in a way that the economy keeps up with the influx. People vote with their feet, they always have, whether it is to head west, or to cross borders, people will go where they believe they can prosper. Some thought that by helping the Mexicans grow their economy through free trade, then they would not cross the border illegally, and that is true to a point. The jobs that went there through NAFTA were lost to the US and that is the rub. Wages in Mexico are substantially less than the US. The average Mexican worker in Mexico earns a little better $6,000. At US minimum wage that more than doubles to over $15,000. That is reason enough to risk crossing the border.
Minimum wage has not increased in a long time. the reason is there are enough people willing to work for minimum wage, than there are people demanding it go up. So politically, there is no advantage to fighting for an increase. Of course, some pay lip service to it, especially when there is a fast food protest, but it quickly goes away. So illegal immigration increases the supply of labor, which brings down the prices companies pay for employees. Maybe that is why the US Chamber of Commerce wants amnesty? And lower income people are more dependent on government programs, is that why Democrats like it?
We must manage immigration, while it is nice to say all can come, it needs to be managed so as not to destroy our middle class. The economy will grow to meet the needs of all. However, if too many come in too quickly, the imbalance will cause economic hardship on all. Only through legal immigration can we manage the influx, and make sure our middle class are not destroyed. After all, is it not better to earn our minimum wage, or Mexico's median wage?
Spend Wisely
Thursday, March 27, 2014
Too Big to fail...
Once again today, Citi Bank is in the news as failing the governments stress test. It was the largest to fail the tests, and it's not all bad. It failed because it wanted to raise it's dividend, and buy back stock. This leads to a more global argument about being too big to fail.
It is my opinion, and historical proof that no enterprise is too big to fail. When a company or institution fails, there is a need, which other organizations flow in to fill. That is the way capitalism works. If you want to see a system where the government props up businesses, simply because they don't want them to fail, look at China.
Even China is taking a second look at this, they announced recently that they will not bail out every company as they have in the past. There are different reasons companies fail, but the bottom line is failure needs to be part of the system. For example in China, because of government activity, they are experiencing a time of over capacity. Over capacity happens when there is more production ability, than is needed to meet demand. That brings prices down, and when the price a company can charge is less than what it cost them to make it, that company fails.
The opposite can be true as well. That is why government regulators scrutinize certain mergers and acquisitions from a competitive stand point. If there are not enough competitors then the price will rise on the goods they produce, and often the quality drops. In the 1960s we saw that with the automotive industry. During that time, imports were not a factor, GM, Ford, and Chrysler pretty much sold all the cars that Americans bought. They got lazy, and quality dropped. Today, we have some of the best made vehicles ever. Back then, if you got 50,000 miles out of a car, that was considered very good; and by 100,000 miles the wheels were falling off. Today we have cars that at 100,000 miles are just getting settled, and I have seen (and owned) some with close to 200,000 miles.
When there are too few, large companies in an industry, it reduces quality and causes prices to rise, it is simple supply and demand. Too big to fail is an incredibly short sighted view by the government. It prevents people from moving up in class from low to middle and middle to upper, but it does lock the rich in their state, and protect their wealth. If a large company is allowed to fail, it will in effect, redistribute wealth to other more productive people.
I'm an older guy, when I started my career in retail, the top five companies out there were Sears, Kmart, JC Penny, FW Woolworth and Montgomery Ward. Today, Sears is not number one, even after merging with Kmart, it is instead an unheard of company back then called Wal-Mart. If Sears was considered too big to fail, discounters like Wal-Mart would not have had the opportunity to thrive. Not that all Wal-Mart has done is a good thing, but that's another post.
Should Willy's Corporation have been saved? How about Duisenberg? If not them, why GM, or Citi, or Leman Brothers, or any other large firm?
It is always in the politicians best interest to have high placed friends, that's what funds election campaigns. It is in their best interest to keep big firms big, to the detriment of their constituents. And we can see the result of this policy today. Main Street is dying. Main Street is the maker of the middle class. Wall Street is thriving. Wall Street is the keeper of the upper class. This has prevented the normal movement between classes and is in the process of establishing a rich royalty. And isn't the royals the primary reason for our Revolution over 200 years ago? Do you want to be in the lower class forever, with no hope of moving out of it? Wasn't that the draw of America in the 1800s? The European poor would strive to afford a one way ticket to America, there if they worked hard, they would find security for themselves and their families, something not available in the kingdoms of Europe. You did not have to be born into money, you could find a way to move in to money.
Too big to fail should be an anathema to the middle class. And since the middle class pays most of the bills in our country, we should demand of our leaders to abandon this line of economics. It just doesn't make sense!
Spend Wisely!
By the way, would you like to know when a new blog is posted? Find me on Google+ and be in the know!
It is my opinion, and historical proof that no enterprise is too big to fail. When a company or institution fails, there is a need, which other organizations flow in to fill. That is the way capitalism works. If you want to see a system where the government props up businesses, simply because they don't want them to fail, look at China.
Even China is taking a second look at this, they announced recently that they will not bail out every company as they have in the past. There are different reasons companies fail, but the bottom line is failure needs to be part of the system. For example in China, because of government activity, they are experiencing a time of over capacity. Over capacity happens when there is more production ability, than is needed to meet demand. That brings prices down, and when the price a company can charge is less than what it cost them to make it, that company fails.
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The opposite can be true as well. That is why government regulators scrutinize certain mergers and acquisitions from a competitive stand point. If there are not enough competitors then the price will rise on the goods they produce, and often the quality drops. In the 1960s we saw that with the automotive industry. During that time, imports were not a factor, GM, Ford, and Chrysler pretty much sold all the cars that Americans bought. They got lazy, and quality dropped. Today, we have some of the best made vehicles ever. Back then, if you got 50,000 miles out of a car, that was considered very good; and by 100,000 miles the wheels were falling off. Today we have cars that at 100,000 miles are just getting settled, and I have seen (and owned) some with close to 200,000 miles.
When there are too few, large companies in an industry, it reduces quality and causes prices to rise, it is simple supply and demand. Too big to fail is an incredibly short sighted view by the government. It prevents people from moving up in class from low to middle and middle to upper, but it does lock the rich in their state, and protect their wealth. If a large company is allowed to fail, it will in effect, redistribute wealth to other more productive people.
I'm an older guy, when I started my career in retail, the top five companies out there were Sears, Kmart, JC Penny, FW Woolworth and Montgomery Ward. Today, Sears is not number one, even after merging with Kmart, it is instead an unheard of company back then called Wal-Mart. If Sears was considered too big to fail, discounters like Wal-Mart would not have had the opportunity to thrive. Not that all Wal-Mart has done is a good thing, but that's another post.
Should Willy's Corporation have been saved? How about Duisenberg? If not them, why GM, or Citi, or Leman Brothers, or any other large firm?
It is always in the politicians best interest to have high placed friends, that's what funds election campaigns. It is in their best interest to keep big firms big, to the detriment of their constituents. And we can see the result of this policy today. Main Street is dying. Main Street is the maker of the middle class. Wall Street is thriving. Wall Street is the keeper of the upper class. This has prevented the normal movement between classes and is in the process of establishing a rich royalty. And isn't the royals the primary reason for our Revolution over 200 years ago? Do you want to be in the lower class forever, with no hope of moving out of it? Wasn't that the draw of America in the 1800s? The European poor would strive to afford a one way ticket to America, there if they worked hard, they would find security for themselves and their families, something not available in the kingdoms of Europe. You did not have to be born into money, you could find a way to move in to money.
Too big to fail should be an anathema to the middle class. And since the middle class pays most of the bills in our country, we should demand of our leaders to abandon this line of economics. It just doesn't make sense!
Spend Wisely!
By the way, would you like to know when a new blog is posted? Find me on Google+ and be in the know!
Friday, February 28, 2014
Military Spending and Economics
There was news this week, that the secretary of defense, was proposing that we draw down our military forces to pre-World War II levels. It might be interesting to consider the effect that this might have on our economy, rather than the defense readiness of the United States. Not that defense readiness is not an important factor.
Of course, different sides of the political spectrum, have different opinions on whether or not this is a good thing. But just how will it affect the overall economy of the United States. While the military employs many people as soldiers and has civilian support personnel drawing down those forces can affect the overall unemployment rate in the nation. They were also considering eliminating at least one airplane from the arsenal. And I'm sure there are weapons systems that they are either considering slowing down production or canceling altogether. The workers employed to build or upgrade weapons systems will obviously be affected. Profits of the producers of the systems will also be impacted. So drawing down the military which is a major part of the annual United States budget will have some effect on our economy. It is, however, my opinion, that the government is not large enough to have a major affect on the general economy. Which is why as a general rule we oppose Keynesian economics.
It is important to note, however, that our economy is currently weak, and in his weakened state is more likely to be affected. In the past, build up military forces, and wars have caused
our economy to strengthen. As an example, World War II brought us out of the depression that began in 1929. Since World War II, and with the onset of the Cold War, it was military production that finally put people to work, and incomes rose. When you add the number of able bodied men that went to Europe and the Pacific, we neared full employment.
After the war, the United States was the only major country that had not had major infrastructure disruptions from the war. Europe was a mess, as was Japan and, to a degree, China. That was the time when the military should have been drawn down, but the Cold War started almost as the Hot war ended. The military became a way, along with world consumers that we had the decade of the 50s and even into the 60s before the world caught up. Most countries were willing to let the US and USSR be the superpowers, they could roll back their defense spending and task that money to economic development. Now Russia is a shadow of their former selves, and we are teetering.
So should we draw down? Probably yes, but the timing is bad. I am not sure if our economy can handle it. As most people see it, our "recession" has not really ended. The numbers may say otherwise, however, those that produce the numbers can affect them. The unemployment number in particularly is not arrived at the same way as in the past. Labor force participation is in the toilet, and inflation is lurking around the corner. Just look at local shopping centers, how many have empty store fronts?
We need to push our resources toward economic development. We need to adjust the way we tax to encourage investment. Once that happens, we can protect ourselves, and let the rest of the world do the same. The time that America has kept the world safe must end. We are not an empire, and I don't think most Americans would want us to be. Did not China keep to itself, their own self defense after Korea. Now look at what they are doing economically. And that is with a very inefficient government system. Just think how well we could do if the government lived within their means and did not confiscate so much of our economic wealth.
Spend Wisely!
Of course, different sides of the political spectrum, have different opinions on whether or not this is a good thing. But just how will it affect the overall economy of the United States. While the military employs many people as soldiers and has civilian support personnel drawing down those forces can affect the overall unemployment rate in the nation. They were also considering eliminating at least one airplane from the arsenal. And I'm sure there are weapons systems that they are either considering slowing down production or canceling altogether. The workers employed to build or upgrade weapons systems will obviously be affected. Profits of the producers of the systems will also be impacted. So drawing down the military which is a major part of the annual United States budget will have some effect on our economy. It is, however, my opinion, that the government is not large enough to have a major affect on the general economy. Which is why as a general rule we oppose Keynesian economics.
It is important to note, however, that our economy is currently weak, and in his weakened state is more likely to be affected. In the past, build up military forces, and wars have caused
our economy to strengthen. As an example, World War II brought us out of the depression that began in 1929. Since World War II, and with the onset of the Cold War, it was military production that finally put people to work, and incomes rose. When you add the number of able bodied men that went to Europe and the Pacific, we neared full employment.
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After the war, the United States was the only major country that had not had major infrastructure disruptions from the war. Europe was a mess, as was Japan and, to a degree, China. That was the time when the military should have been drawn down, but the Cold War started almost as the Hot war ended. The military became a way, along with world consumers that we had the decade of the 50s and even into the 60s before the world caught up. Most countries were willing to let the US and USSR be the superpowers, they could roll back their defense spending and task that money to economic development. Now Russia is a shadow of their former selves, and we are teetering.
So should we draw down? Probably yes, but the timing is bad. I am not sure if our economy can handle it. As most people see it, our "recession" has not really ended. The numbers may say otherwise, however, those that produce the numbers can affect them. The unemployment number in particularly is not arrived at the same way as in the past. Labor force participation is in the toilet, and inflation is lurking around the corner. Just look at local shopping centers, how many have empty store fronts?
We need to push our resources toward economic development. We need to adjust the way we tax to encourage investment. Once that happens, we can protect ourselves, and let the rest of the world do the same. The time that America has kept the world safe must end. We are not an empire, and I don't think most Americans would want us to be. Did not China keep to itself, their own self defense after Korea. Now look at what they are doing economically. And that is with a very inefficient government system. Just think how well we could do if the government lived within their means and did not confiscate so much of our economic wealth.
Spend Wisely!
Wednesday, February 19, 2014
Its Crazy, Just Crazy!
Sometimes when I write, there seems to be so little out there, it seems I have to search for something that intrigues me, and I feel can be written about. Lately, I've been on overload, and blocked because there is so much.
So let's do some quick hits. First the Affordable Care Act (it's real name, not Obamacare). It really didn't surprise me a lot about all the web site problems, or other problems after people enroll. The goal of this legislation was not to provide affordable care, it wasn't so you could keep you plan or doctor, or any of the other minutia. It was all about control. It was, and some said it up front, a move towards single payer systems as they use in countries like Britain, and Canada. But knowing that there would be backlash from the center, as well as the right, meant that it would not pass.
The shrinking middle class. For more than a decade, it seems there has been pressure on the middle class. It is not tax policy, although that is part of it, it isn't laziness on the part of the people. It is rather the loss of traditional middle class jobs to developing countries. And part of that is because of labor unions, and part is because of corporate greed, and part is because we as consumers don't care. All we really want is cheap stuff. Until that mood changes, and we demand value, the middle class will continue to shrink.
Lack of local and small startups. Drive through your town, and look at the strip malls and shopping centers. Note all the empty businesses. There is no concerted economic effort from Washington, to State Capitols, to City Halls to build that base. Our system seems to be broke, there is no leadership from our politicians, as long as they get paid, it seems they don't see a problem.
Unemployment. This is still a massive problem. Food Stamps are way up, disability claims are way up, which means people are losing income. Without their required income, how can we keep our houses up, buy new cars, or even eat out? Recently Joe Biden was touting the stimulus of several years ago. Yet work force participation is way down over traditional levels.
Inflation. What no one seems to be talking about. The price of gas is up. The price of hamburger is up. The cost to heat and cool our homes is up. Salaries are stagnant. Inflation will continue, it has to if government wants to keep borrowing, and the Fed seems obliging. Isn't less income through wage stagnation and inflation an unwritten tax?
Green energy companies, despite government props are failing. It seems the government feels they can encourage things that the people don't want in big enough quantities to make them productive. I love electric cars, but would not buy one because of the range and lack of infrastructure. Besides driving to the store or work, occasionally we like to vacation, usually by car, that would be difficult with a Chevy Volt.
People are mad. I like to read comments after a story I read. But it seems everyone is mad. Teabaggers this, Obummer that, there is no civility on either side of any issue. There is a claim that there is a large middle that can go either way, depending on perception, how do they expect to educate people to their way of thinking? It is dialog, and decent debate that will move us forward, not partisan bickering. And before you say your side isn't bickering, look at the comments.
Taxation. Believe it or not, we are taxed much much more than King George ever taxed us. And we kicked him out of our country through revolution. Yet without the high taxes government is levying, there is no money to buy votes at election time. And we are all bought. Every cycle, your congressman runs on what he has done for his or her district. That money comes from taxes. Our founders worried about taxes, and wrote the Constitution such as that it took an amendment to institute the income tax. And that was just about 100 years ago. Which seems to correspond to when the decline began... coincidence?
Racism. The real racists are the politicians who pander, but never solve the problems. And this racism is preventing minorities from finding good jobs, so they can move to the middle class. It is the loss of middle class jobs that encourages this racism. I wonder when the people affected by it will demand their representatives do something about it, rather than just campaign on it. Yes racism is brought about by economics, or at least bad economics.
So what is a body to do? We need to reengage in the political process. Stop voting on autopilot. Demand at town halls real answers to questions, not sound bites. Let them know it is not about them, it is about you. Don't be afraid. If you have a middle class job, don't assume you will lose it. Keep your attitude up. Use your income to be happy, because that's when things will start to turn in spite of the politicians.
In the last century there were two pretty good Presidents economically. One said "We have nothing to fear, except fear itself" and the other said "I see America as a shining city on a hill..." We need leadership like that once more. Are you one? Please run!
Spend Wisely!
So let's do some quick hits. First the Affordable Care Act (it's real name, not Obamacare). It really didn't surprise me a lot about all the web site problems, or other problems after people enroll. The goal of this legislation was not to provide affordable care, it wasn't so you could keep you plan or doctor, or any of the other minutia. It was all about control. It was, and some said it up front, a move towards single payer systems as they use in countries like Britain, and Canada. But knowing that there would be backlash from the center, as well as the right, meant that it would not pass.
The shrinking middle class. For more than a decade, it seems there has been pressure on the middle class. It is not tax policy, although that is part of it, it isn't laziness on the part of the people. It is rather the loss of traditional middle class jobs to developing countries. And part of that is because of labor unions, and part is because of corporate greed, and part is because we as consumers don't care. All we really want is cheap stuff. Until that mood changes, and we demand value, the middle class will continue to shrink.
Lack of local and small startups. Drive through your town, and look at the strip malls and shopping centers. Note all the empty businesses. There is no concerted economic effort from Washington, to State Capitols, to City Halls to build that base. Our system seems to be broke, there is no leadership from our politicians, as long as they get paid, it seems they don't see a problem.
|
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Unemployment. This is still a massive problem. Food Stamps are way up, disability claims are way up, which means people are losing income. Without their required income, how can we keep our houses up, buy new cars, or even eat out? Recently Joe Biden was touting the stimulus of several years ago. Yet work force participation is way down over traditional levels.
Inflation. What no one seems to be talking about. The price of gas is up. The price of hamburger is up. The cost to heat and cool our homes is up. Salaries are stagnant. Inflation will continue, it has to if government wants to keep borrowing, and the Fed seems obliging. Isn't less income through wage stagnation and inflation an unwritten tax?
Green energy companies, despite government props are failing. It seems the government feels they can encourage things that the people don't want in big enough quantities to make them productive. I love electric cars, but would not buy one because of the range and lack of infrastructure. Besides driving to the store or work, occasionally we like to vacation, usually by car, that would be difficult with a Chevy Volt.
People are mad. I like to read comments after a story I read. But it seems everyone is mad. Teabaggers this, Obummer that, there is no civility on either side of any issue. There is a claim that there is a large middle that can go either way, depending on perception, how do they expect to educate people to their way of thinking? It is dialog, and decent debate that will move us forward, not partisan bickering. And before you say your side isn't bickering, look at the comments.
Taxation. Believe it or not, we are taxed much much more than King George ever taxed us. And we kicked him out of our country through revolution. Yet without the high taxes government is levying, there is no money to buy votes at election time. And we are all bought. Every cycle, your congressman runs on what he has done for his or her district. That money comes from taxes. Our founders worried about taxes, and wrote the Constitution such as that it took an amendment to institute the income tax. And that was just about 100 years ago. Which seems to correspond to when the decline began... coincidence?
Racism. The real racists are the politicians who pander, but never solve the problems. And this racism is preventing minorities from finding good jobs, so they can move to the middle class. It is the loss of middle class jobs that encourages this racism. I wonder when the people affected by it will demand their representatives do something about it, rather than just campaign on it. Yes racism is brought about by economics, or at least bad economics.
So what is a body to do? We need to reengage in the political process. Stop voting on autopilot. Demand at town halls real answers to questions, not sound bites. Let them know it is not about them, it is about you. Don't be afraid. If you have a middle class job, don't assume you will lose it. Keep your attitude up. Use your income to be happy, because that's when things will start to turn in spite of the politicians.
In the last century there were two pretty good Presidents economically. One said "We have nothing to fear, except fear itself" and the other said "I see America as a shining city on a hill..." We need leadership like that once more. Are you one? Please run!
Spend Wisely!
Thursday, January 23, 2014
Economics Overload
We hear news reports about the economy. And it seems as though the reports are coming fast and furious. In our view, the most important statistic is the labor force participation rate. That statistic will tell us, with out the usual manipulations, the health of the economy, particularly when it comes to income.
The unemployment rate, as an example, has consistently hovered in the 8% range. And from our high school days, we learned that 7% was considered by most economists to be full employment. But that number has changed. Beginning in the late 1970's, they started to report unemployment as a percent based on how many people are actively looking for work. Later, they decided that unemployment is those that are looking, and on unemployment benefits. But what happens when their benefits run out? They have not found a job, they are just not counted, even if they are actively looking.
Labor force participation is an easier number to look at. That number is the total population of a country divided by the number of people that actually have jobs. It is much cleaner.
Unemployment has been dropping since its high of near 10% in 2009. That would seem to be good news, however, Labor participation has been dropping as well. Traditionally that number is in the upper 60% range. There are a number of people who don't work outside the home, stay at home moms and the elderly who are retired. There are also the disabled, who are incapable of working. So since 2009, what has the labor force participation rate done? Currently it is at just a touch more than 62%. In 2003, the most recent peak this rate was 66.5%. In 2009 the rate was 65.7, a full 3 percentage points higher than today, yet the official unemployment has dropped by 3%. If we had just maintained the 2009 rate, there would be 7 million more people working. And if you add them to the current number it would move the unemployment rate to almost 11%.
So what happened to these 7 million people? They are surviving the best the can. Some are spouses, where the other spouse works, so while it is a hardship, survival is a little easier. Some are couples, perhaps with children, that are literally living day to day, with no hope. Some are business people, that although they have no job, have sufficient savings to muddle on. The last time labor participation was this low was the late 1970s, and some of these people remember that time. They were coming out of school, just hoping to find a job. Now they are near retirement, just hoping to find a job.
There is good news! After the 1970s came the 1980s, that decade ushered in one of the longest post World War II recoveries, lasting until the early 2000s, with a few hiccups. The good news is also that bad times don't last forever, although, at times it seems so. Once our political leaders realize that jobs are the important thing, more important than say health care, gay rights, or even abortion, (and these are all very important issues!) then we can move forward. Once there is a leader that understands economics, we will recover. Why? Because the economy is tied to you, and me, and all of our family and friends. The economy is us, and ultimately if led right, we will understand the importance of being positive on the economy. If you have a job, be grateful, if you don't, be hopeful and continue to look.
And let's hope that the new norm is not middle class fast food jobs. It is the manufacturing jobs that will bring us back. I really don't care if they say we can live without them, these jobs help raise the lower educated and skilled people to their full potential. Seems to be working in China, huh.
Spend Wisely!
The unemployment rate, as an example, has consistently hovered in the 8% range. And from our high school days, we learned that 7% was considered by most economists to be full employment. But that number has changed. Beginning in the late 1970's, they started to report unemployment as a percent based on how many people are actively looking for work. Later, they decided that unemployment is those that are looking, and on unemployment benefits. But what happens when their benefits run out? They have not found a job, they are just not counted, even if they are actively looking.
Labor force participation is an easier number to look at. That number is the total population of a country divided by the number of people that actually have jobs. It is much cleaner.
 |
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Unemployment has been dropping since its high of near 10% in 2009. That would seem to be good news, however, Labor participation has been dropping as well. Traditionally that number is in the upper 60% range. There are a number of people who don't work outside the home, stay at home moms and the elderly who are retired. There are also the disabled, who are incapable of working. So since 2009, what has the labor force participation rate done? Currently it is at just a touch more than 62%. In 2003, the most recent peak this rate was 66.5%. In 2009 the rate was 65.7, a full 3 percentage points higher than today, yet the official unemployment has dropped by 3%. If we had just maintained the 2009 rate, there would be 7 million more people working. And if you add them to the current number it would move the unemployment rate to almost 11%.
So what happened to these 7 million people? They are surviving the best the can. Some are spouses, where the other spouse works, so while it is a hardship, survival is a little easier. Some are couples, perhaps with children, that are literally living day to day, with no hope. Some are business people, that although they have no job, have sufficient savings to muddle on. The last time labor participation was this low was the late 1970s, and some of these people remember that time. They were coming out of school, just hoping to find a job. Now they are near retirement, just hoping to find a job.
There is good news! After the 1970s came the 1980s, that decade ushered in one of the longest post World War II recoveries, lasting until the early 2000s, with a few hiccups. The good news is also that bad times don't last forever, although, at times it seems so. Once our political leaders realize that jobs are the important thing, more important than say health care, gay rights, or even abortion, (and these are all very important issues!) then we can move forward. Once there is a leader that understands economics, we will recover. Why? Because the economy is tied to you, and me, and all of our family and friends. The economy is us, and ultimately if led right, we will understand the importance of being positive on the economy. If you have a job, be grateful, if you don't, be hopeful and continue to look.
And let's hope that the new norm is not middle class fast food jobs. It is the manufacturing jobs that will bring us back. I really don't care if they say we can live without them, these jobs help raise the lower educated and skilled people to their full potential. Seems to be working in China, huh.
Spend Wisely!
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