Umemployment News

There was an AP story I read over the weekend saying that 4 out of 5 American adults struggle with poverty.  It detailed the plight many people find themselves in, even though our government says the unemployment rate is under 8%.  Earlier today, I heard a report on the radio that a woman refused a raise at work, so it didn't affect the aid to help her children.  Both of these seem to confuse people, so I thought we should spend a few minutes exploring why these stories mean anything at all.

Poverty has just a little to do with unemployment, especially the unemployment number the government likes to use.  And this is not new, past administrations have also used this number, because it makes them look good.  And on one level, I agree with their use of that number, however from a strictly economic stand point, it is misleading.

The number the administration is using counts only those who are actively seeking employment.  It does not count parents that choose to stay home with their kids, it also does not count people who have given up the search for meaningful employment, and lastly it does not count the under employed, those capable of performing at a higher level, but are forced into fast food or retail clerking.  Or those working part time, because they can't find a job that is full time.  These are the numbers that play into the AP story.  And these are the numbers we need to be concerned about.  These numbers give us a better picture of the state of our economy.

This is the health of our economy.  And it is, in some cases, the result of unintended consequences of policies.  Why do so many people need to work 2 part time jobs, instead of one full time job?  What can we do to change this trend?

The new healthcare law has also been in the news, talk about unintended consequences, the way it is written encourages companies to remain small, or only hire part time.  Some have even reduced hours to make formerly full time employees part time to avoid the law.  This is especially true in retail and food service organizations.  The margins, because of a lack of consumer confidence, have contracted.  One company I follow, reported a sales increase last quarter, but profit was down 25%.  Without profit, no one has a job.  Sales increases for them would indicate that their retail outlets are busier, but profit decrease would keep them from hiring additional clerks, trainers, or other support staff.  This company also hires primarily full time employees, and does supply health care.  If they looked at the occurrence of sales, they might be better off hiring part time, so they can have more people available when their stores are the busiest. 

Most companies have a strategy, specific to them to generate enough profit to run the business, and provide a good income for stakeholders of the organization.  And maybe that is one way to help the economy.  Over the last few decades, big companies are getting bigger, and the acceptance by the public of a company regardless of where they are head quartered, has encouraged this.  Government prefers large concerns as well, it is easier to watch fewer players to make sure they are paying their taxes.  Look on the street of your business district, how many small businesses are there?  Is it full of the national companies like McDonald's, Mattress Firm, Home Depot, Macy's, Target, Wal-Mart, and the like?  Think of where the profits go, to your town, or to the head quarters towns?



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Small business can be our salvation.  Small business can react quicker than large business.  Small business cares more about their home town.  But small business needs profits to do that.  I'm big on small, small business, and small government can react more efficiently and quicker than large bureaucracies, and they spread the wealth more effectively.  The closer a decision maker is to the decision, the more compassion and intuition they can use.  And this is key to the second story above.

The woman was making a sound economic decision.  She needs to care for her children.  If she takes the raise she will lose all her children's benefits.  The $1 raise would not replace those benefits, so it makes sense to refuse it.  Now if the agency applying those benefits were closer to the situation, perhaps they could change policy, enabling her to make more money, but not eliminating all the benefits.  A sliding scale if you will that would gradually allow this woman to care for her own children, reducing what we need to spend as tax payers.  How does a manager in Washington know that for one individual?  He has millions of cases he is responsible for, he can't take the time to review each one independently.  If it were decentralized, with local over sight, then maybe the case load would be more manageable and decisions would make more sense.  And part of our spending problem might be affected in a good way.  And she would benefit from the higher esteem of taking care of her own. 

Neither side of the political arena seems to care for this, it takes their power away.  Our government was originally set up to be decentralized.  It was set up to be by the people, a diverse Congress of shoe makers, bakers, factory owners, and yes lawyers that came to Washington for a brief period to set direction and provide for the defense of the nation.  Now we have a more or less permanent ruling class, not unlike the Royals we revolted against.  Large companies do not like it either, they would not be so large, and executive compensations would fall.

Bringing government closer to the people would make it more accountable, and more able to meet expectations of those governed.  But that would require the power brokers in Washington to take a pay cut, and they don't want to.  Who is to say Carl Rove, or Lanny Davis is any smarter than local people?  What makes Barrack Obama or George Bush any more able to run local issues than a mayor or governor?  Why is Congress' and the President's approval rating in the toilet?

I live in Missouri, our beliefs are substantially different than those of say New York.  And that is ok, if there is more local business and government.  Locals can set policy within their area, and if there are people who disagree, they can educate, run for office or move to a more hospitable area in their opinion.  In general, what the majority of who vote want, the whole population must accept, why should New York have to listen to Missouri, or vice versa, but that is where we are now.  Localities will always differ, why make all people the same?  Maybe the next step is green peasant uniforms and a little red book?

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National Debt, Why is Our Economy is Weak

Japan, Zimbabwe, Greece, Italy all have a debt to gross domestic product (the total of all goods and services produced by the people of that country) that exceeds 1.  That means that if they sold everything and applied it to their national debt, they could not pay it off.  That would seem to be the very definition of insolvency.  And the Euro zone is in recession.  Austerity has caused economies to remain slow, so there is no growth to provide incomes for the people.  We have read all about it in the news.  One thing they do not tell us is the countries doing better at their ratios.  France, Canada, and Germany all come in under 1, which means by liquidation, they could pay their debt.

The United States is also still solvent.  But our debt keeps climbing, and soon we fear we will be in the same situation as Japan, Greece, and Italy.  The free spending of the last several years has to be reigned in.  Our national spending originates, by law, in the US House of Representatives.  They may be influenced by the White House or the Senate, but it is their responsibility to originate spending bills.  The Senate then must agree, as does the President.  At that point money is spent.

There is an adage used by auto mechanics:  "pay me now, or pay me later", and the later usually costs more.  We also know that no mortgage lender would lend us more money than we earn, in fact it is usually less than half of what we earn they will lend.  So how does Washington justify this unreasonable amount of debt?  They don't. 

There is supposed to be a debt ceiling that the government can not cross.  That is designed to keep our debt manageable.  But when we have to continually raise it, the purpose is defeated.  In our personal lives, we see what happens when we fall too deeply into debt.  Our homes are foreclosed on, our cars repossessed.  We need to be careful with our money, or risk losing it all.  Is that not also a risk for government?  If we fail to meet debt payments is it possible that people to which we owe money to foreclose?  After all there are substantial assets owned by government.  How about the Old Faithful, brought to you by Germany?  Or how about The red woods, brought to you by the People's Liberation Army?  Are these possibilities?  Why wouldn't they be?

The Japanese debt has wrecked their country, yes they still have an economy, but it doesn't grow like it used to.  It is harder for them to bring jobs to younger people entering the job market.  Same in Europe, it is the young who will bear the burden.  Yet here we hear lip service to caring for the children.  The First Lady struggles to try to encourage good diet in schools.  If we are burdening them with debt, why worry?

The good news, if there is some, is we are not yet to a point of insolvency, but it is close.  What our leaders in Washington do, will affect future generations.  Should we hand to them a country that can, or a country that can't?  It will not be easy,  politicians do not like to say no.  In the 1980s, we as a nation started on a path to surplus. When we got there in the 1990s, there was no restraint by Congress to save those excesses for the future.  And they made no move to seriously try to pay down the debt.  Shame on them. And this is precisely why Keynesian Economics does not work. Our forefathers worked hard to pay off the debt of the Revolution.  The next generation worked hard to pay off other debt, and our economy thrived.  Since World War II, there has not been a similar attempt to pay down debt, instead we just let it ride, and that is through Democrat AND Republican administrations.

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We saw a story about Detroit.  Apparently Detroit is going to have to not honor pensions.  People worked diligently through their lives, with a promise.  But that is all it was, a promise.  Now when these people are old and some frail, can they go out to work again?  Is this the future of Social Security?  Yet IRAs are still there, but even they can be affected by this debt as our markets lose value.  So we the adults of our time are pushing our responsibilities on to our children and our parents, that seems rude to me.  And we spend all our time talking about illegal immigration, and other minutia that will not do anything but offer cover for the free spenders in Washington.

All wars are fought over economic inequalities, even our Civil War.  Is a new Civil War in our future?  Or a split of our country into several new countries?  Is that what we want?  Would that be good economically?  Unless We the People make a concerted call to our leaders, that may not be too far off base.  How do we call them?  The first wake up call is usually real effective if it happens at the ballot box.  We have the power to prevent these spend thrifts from enriching themselves on our tax money.  You have heard the rags to riches stories, middle class guy goes to Washington, makes a lot of money, leaves office to be a lobbyist, never stepping back to where he came from.  At least if we keep the door spinning, the potential of that would be minimized.

So to you, and especially to the Congress of the United States...

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What is Econocentric?

Sometimes economists make up terms. I am sure there are other groups that do the same thing.  Here is a new word out there.  Econocentric.  But what does it mean?

Econocentric can be broken in to a couple pieces econo and centric.  The word means to buy from the closest source, assuming all other things are equal.  In other words, if you have access to let's say furniture, in a retail store,  Econocentric would be to shop for the quality and price that is acceptable to you, but then consider where the furniture was manufactured.  So let's say you find 3 chairs you like, each does what you need it to do.  Chair one is made in China, chair 2 is made in South Carolina, and chair 3 is made in Texas.  If you lived in Asia, you would be Econocentric by buying the chair made in China.  If you lived in Pennsylvania, you would buy chair 2.  And if you were on the West Coast of the US you would buy chair 3.

Why is being econocentric important? My grandfather would probably have said, cause it supports the working man in this country.  From an economic point of view, it supports people closer to you.  If you lived in Texas, as in our above example, maybe you even had a neighbor who worked for the manufacturer.  Assuming you are friendly, isn't it a good thing to support a neighbor or friend?  But even farther, doesn't that give that person the ability to spend money they made at work within the community, perhaps even from the company you work with.  This goes deeper than "Buy American"  because it is buying equal quality at equal price.

It is also how our government should function.  Most governments try to protect local jobs by imposing tariffs on imported goods.  Which is their prerogative, as long as it is not artificially inflating the real price of the goods.  It is a way that government can prevent other companies from polluting the air or treating their people as serfs.

Tariffs should even the field for domestic producers.  It is vital to our sovereignty that we have a manufacturing base.  How could we have won World War II if not for our production facilities?  Think German companies would have sold us bullets or planes?  It is OK if there needs to be conversion of plants, like during that war, to shift from consumer to military production, but to not have the plants to convert would be catastrophic. 

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But what of companies headquartered here, that manufacture outside the country?  Treat the origin of the products as the way to determine the econcentricity of the purchase.  If a shoe company has a plant in India, the product is sold as Indian, even though the company is headquartered here.  So Apple's iPhone is from China, that makes it Chinese as far as our discussion here is going.  Even though it is developed and designed in California.  If Samsung opened an American plant, even though they are not headquartered here, their product would be more econocentric.

Some countries just don't care for their people, their environment, or the benefits of having a thriving manufacturing base, they just care about the money they skim from the top.  China today may be the most polluted country in the world, they are killing their citizens, and more, since pollution doesn't stop at the border.  Their people are committing suicide from over work and inability to save enough to get out of the cycle.  Just as in the 1920s, some American Companies abused their labor.  Or even later when companies polluted.  We fix our problems, or are in the process, which is why tariffs should be imposed on countries like China that don't.  As those countries fix the problems the tariffs should decrease, then the field is equal, and business in both countries can thrive, and consumers will benefit from competition to keep prices down but will not die because of unfair competition.

If you agree with this reasoning, why not lead an econocentric lifestyle? Even if you don't...

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Is Our Problem Unemployment?

I read an interesting story, one that looks at an issue that is important to our economic well being.  It seems that only 47% of working age Americans have a full time job.  That is incredibly low.

Why is the economy weak?  It seems there is not enough jobs to go around.  Most news organizations have been dutifully reporting the Administrations unemployment figures.  Even Vice President Biden has been crowing about the numbers.  The problem is, they are manipulated to make things look better than they are.

There are approximately 245 million working age adults in our country.  Out of this number only 144 million have jobs at all.  Would that not make the real unemployment rate 41%?  But wait, as the TV hawkers say, some of those are people not looking for jobs.  People who are disabled, stay at home Mom's and the like, would not be actively looking for a job.  Most economists would say you can't count those, which seems pretty fair. 

Then there is the underemployed.  Just because some one has a job, doesn't mean it is a job they are qualified for, or even want to do.  Maybe it is part time, or way under the person's skill level, the point is they are not necessarily happy in the job they have.  Underemployment seems to be where we have a problem.  Again, looking at the numbers, only 53% of working age adults have a full time job.  Much more work would have to be done to determine skill matches in those full time jobs, like a PHD working full time at McDonald's. 

There have been some surveys I have read that indicate that many people are not satisfied with their current job.  That would be a non scientific indicator that underemployment is a major issue in today's economy.  And it would seem needs to be researched to find solutions. 

When a person is underemployed, or unemployed, they are less likely to make major purchases, especially if it can be put off.  Many employed see the weakness, and they resist buying because of their worry that the economy may put them in a similar position in the future.  So how does the economy heal?

One of the tenets of my economic philosophy is that the economy is driven by a certain group psychology.  That is mostly about the feeling common people have towards the potential in the macro economy.  The economy goes through cycles, as much as our Keynesian friends want to deny it or say they can mitigate it, these cycles have endured since the beginning of time.  Studying history can shed some light on how to correct this problem.  There has been little experience in the down times of the cycle in recent memory.  The United States has over all been in a distinct upward tact since the mid 1980s.  Yes there has been some pull backs, but over all things have been growing.



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If we look at the late 1970s, and early 1980s, we may be able to find a solution.  What caused us to leave "stagflation" behind then?  What started our economy moving again?  It was a change in attitude by the American public, as much as anything else.  It was not the stimulus per say, but a general feeling that things were getting better, allowing them in their own situations to buy a new car, or appliances, or even a house.  The snowball effect of these purchases raised all other levels.

That is what will happen here as well.  One thing to take into account is how that change of attitude was precipitated.  That is where politics came in.  It is the vision of the President that excites the most change.  Yet this administration seems intent on not displaying any excitement.  One reason our current President was elected originally was his phrase "Hope and Change."  Yet after the election, he seemed to throw it under the bus.  That was not productive in an economic sense.  What he seems to believe is closer to Herbert Hoover or Jimmy Carter than to Franklin Roosevelt or Ronald Reagan.

Things can change, although the potential under the current administration is not high.  Our next Presidential election will prove critical to our status as the leader of the economy of the world.  But right now there is considerable political disarray in our nation, and even the world.  So what do we do in the mean time?

We the People of the United States can change things regardless of the politicians, we consent to their governance, we can change things, even if they show no interest.  We still have substantial liberties and freedoms to affect our lives economically and in other ways.  We need to stay up beat, we need to say enough.  We need to...

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Failure Economics

While it has been awhile since the last post, it is not because of lack of news.  And so I wish to plug forward and address an issue that seems to be aggravating me, and I'm sure others.

Recently the President has gone on the offensive for climate change issues.  One of these issues is the Keystone Pipeline.  He has pretty much said it will not be built.  Why?  Because of environmental concerns.  And he is entitled to his opinion, here's the opposition.

So we don't build the pipeline, what's the big deal?  The oil this pipeline would transport is under Canadian soil after all, so what good does it do us?  Isn't it better that that oil not be refined to restrict the carbon impact?  All good questions, don't you think?

True it is Canadian oil, not US reserves.  Do you think the Canadians won't find a way to get this oil to market?  Or do you think they will say oh well.  It will go to market, it will be refined, just not by the US.  Since this reserve is middle to west in Canada, will they take it to the Atlantic or the Pacific?  The reasonable answer is the Pacific.  So who might be interested in buying and refining this oil?  The Japanese?  The Chinese?  Wouldn't the safe money be on one of these two countries?  When another country refines it, they can use it domestically, or sell it internationally.  So saying that this move will stop the "carbon footprint" is inaccurate at best, in fact Japan or China is much further than Texas increasing transport costs and pollution.  On the other hand, it will increase world supplies, and hopefully help bring down the price of oil, it will be used.  Now consider, do we have any control over refineries in other countries?  Can we force them to clean up their emissions?  No.  If the oil were refined here, our laws would refine it cleaner than we can assume other countries would refine it.

And what of jobs?  Has not the President promised to be laser focused on jobs?  Is not the Vice President touting the economic success of the Administration?  Of course.  But oil refined outside our borders does not employ Americans.  There is no income tax if there are no jobs.  And when we need oil, we will have to buy it from those refining it, sending dollars to other countries.  Refining this oil would produce jobs in our country, and the President apparently doesn't care.  Building the pipeline would be a great stimulus project, that the government would not have to fund.  But I guess it is better to fund the Solyndras of the world, look at all the jobs... never mind.



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It is not about the environment at all, it is not about economics either, this is strictly a political decision, and political decisions usually cause failed economic policy.  If it were about the environment, we would want to build that pipeline, so we can ensure it is as clean as possible, search China pollution to see what the carbon footprint would be if we don't refine it.  If it were about economics, we would build this pipeline for the jobs and tax revenue it would generate.  A political decision just buys votes of who, most would say are zealots, wanting to eliminate the use of fossil fuels. 

Sometimes it is called the law of unintended consequences, like electric cars that charge up with electricity from coal.  Or Detroit.  We need to grow our economy to solve many of our economic problems.  We need a Congress that doesn't spend every penny, because they can.  We need jobs to get out of the malaise that is still affecting many sectors, regardless of the "rosy" numbers touted by the Vice President.  Statistics are just ways to manipulate numbers.  That is why unemployment numbers no longer include those that have given up.

It is not too late to turn our ship around, it will just take good people to do it.  Good people which we seem to lack on all sides at the moment.  We are the largest economy in the world, we can remain the largest economy, but not by refusing to do things that are in our economic interest. 

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