This morning's job numbers are bad enough -- 263,000 more jobs lost in September, and unemployment now at 9.8 percent -- but look behind them and the news is even grimmer. The only reason the numbers don't look worse is that 571,000 workers dropped out of the labor force. Remember, too, that the economy needs about 125,000 new jobs every month just to keep up with a growing population. So we're even further behind.
The numbers would be even worse but for the stimulus package. According to an analysis by the Economic Policy Institute, the stimulus is saving or creating between 200,000 and 250,000 jobs a month. Without it, job losses in September would have been nearly twice what they actually were.
State governments, meanwhile, continue to shed employees. Here's one of the most depressing statistics I've seen (if you need any additional ones): Some 15,600 teachers didn't return to work in September. They were laid off. So our classrooms are bigger, we have fewer teachers, and our students are presumably learning less -- at the very time when they need to be learning more than ever.
Sunday, February 28, 2010
Saturday, February 27, 2010
Sugar Giants Shove Their Sweetener
by Chris Tenove
Jul/Aug 2003 Issue
What does anybody know about the sugar industry? The people who put the frosting on the frosted flakes keep a low profile and are happy when folks are too busy eating to ask a lot of questions. Now, though, a dust-up with the World Health Organization (WHO) has flushed them into the limelight, where they're pitting profits against public health.
The conflict was inflamed by a new set of dietary guidelines drawn from two years of research by the WHO and the UN Food and Agricultural Organization. The guidelines are part of a worldwide strategy to tame the swelling epidemic of obesity, diabetes, osteoporosis and cardiovascular diseases. One recommendation is that free sugars (i.e. sugar added to foods) should make up no more than 10 percent of our daily caloric intake. The sugar lobby reacted to that suggestion like a toddler asked to hand back his Halloween booty...
'It was particularly stupid for them to put in writing that they're going to try to get Congress to take away WHO's money,' says Michael Jacobsen, executive director of the Center for Science in the Public Interest. 'It gave consumers a chance to see the kind of bullying that is usually done behind closed doors.' [Adbusters]
Friday, February 26, 2010
In Spain, mortgage funding is different
Spain is different. The slogan, which the tourism industry used in the 1950s to celebrate the country’s identity and culture, is nowadays something of a joke. Among Spaniards, the old line is an expression of self-deprecation, of a sentiment of quirkiness and inferiority, which constitutes a fundamental part of the Spanish ethos. When it comes to funding mortgages, however, Spain is different in a good way.
Thursday, February 25, 2010
Wednesday, February 24, 2010
More Desperation from the Right
Lou Dobbs, Sean Hannity, Rush, and the right-wing blogosphere seem interested in a talk I gave in September, 2007 to students in a political science class here at Berkeley, in which I played the role of a presidential candidate so politically incorrect and tone-deaf as to pummel every sacred cow in sight -- including the notion that our society could afford and would continue forever to pay whatever amount of money was required to keep everyone alive forever. The whole point of the mock exercise was to show that presidential candidates can't state what everyone knows to be the truth because they'll be taken apart by the Right or the Left. I slew many other sacred cows in that mock exercise, some of which are held dearly by the Left. Nonetheless, two years later the Right has exhumed the lecture and taken my words completely out of context purportedly to show that Obama and the Democrats plan death panels.
If their desperation weren't so pathetic it would be funny. After all, they have proven the whole point of my lecture. UC Berkeley maintains an archive of webcasts and my speech is available there verbatim, should you wish to listen to it in its entirety.
Tuesday, February 23, 2010
Monday, February 22, 2010
EZer taxes
Imagine if you didn’t have to file a tax return. Imagine if, come T-day, the only thing you needed to do to comply with your tax obligations was to sign a form and mail it. And imagine if this could be done without changing a comma of the tax code. This is not a pipe dream—millions of citizens in different parts of the world already do it.
Austan Goolsbee, professor at the University of Chicago Graduate School of Business and head economic adviser to Barack Obama, is proposing to let the Internal Revenue Service, America’s tax man, put together drafts of individual tax returns and mail them to taxpayers. Experts know the system as “Tax Agency Reconciliation” (TAR). Goolsbee has had the good sense to re-baptize as “Simple Return.”
Tax collection agencies receive all the information they need to fill out the returns of many taxpayers. By law, employers and financial institutions send the data to them. The time spent by filers collecting statements, putting the numbers in the right boxes of the tax form, figuring out the standard deductions and exemptions, and calculating the tax bill--not to mention the fees paid to tax prepapers--are thus a waste.
Sweden and Denmark use the system. In Spain, with seven years of TAR experience, some filers can even request and confirm their pre-filled tax returns by sending a text message. Some Spaniards don’t even have to sacrifice precious TV time: they can do their taxes through their interactive, digital TV sets. (I encourage readers who know of other countries in the EZer Club to let me know in the comments or by e-mail. I’d like to make a list. If you respond, please specify whether the country does TAR or exact withholding.)
Austan Goolsbee, professor at the University of Chicago Graduate School of Business and head economic adviser to Barack Obama, is proposing to let the Internal Revenue Service, America’s tax man, put together drafts of individual tax returns and mail them to taxpayers. Experts know the system as “Tax Agency Reconciliation” (TAR). Goolsbee has had the good sense to re-baptize as “Simple Return.”
Tax collection agencies receive all the information they need to fill out the returns of many taxpayers. By law, employers and financial institutions send the data to them. The time spent by filers collecting statements, putting the numbers in the right boxes of the tax form, figuring out the standard deductions and exemptions, and calculating the tax bill--not to mention the fees paid to tax prepapers--are thus a waste.
Sweden and Denmark use the system. In Spain, with seven years of TAR experience, some filers can even request and confirm their pre-filled tax returns by sending a text message. Some Spaniards don’t even have to sacrifice precious TV time: they can do their taxes through their interactive, digital TV sets. (I encourage readers who know of other countries in the EZer Club to let me know in the comments or by e-mail. I’d like to make a list. If you respond, please specify whether the country does TAR or exact withholding.)
Sunday, February 21, 2010
More Americans Expecting Recession in The Next Year
More Americans are expecting a recession in the next year. Consumers are waking up to the reality that the economy has a significant chance of recession next year.
Recession times are increasingly being expected. The coming holiday spending season will likely provide important clues to where consumer spending is headed. Consumer spending is about 70% of the US's GDP. Consumer spending is a key factor in a forecasting a recession.
The economic mood took a sharp turn for the worse over the past month, with 40 percent of Americans expecting a recession in the next year, according to a Reuters / Zogby poll released Wednesday.
That was a big rise from a month earlier, when 31 percent of the likely voters polled predicted a recession. The darker mood came as mounting concerns about housing and credit markets pounded Wall Street, and oil prices approached $100 per barrel.
That was a big rise from a month earlier, when 31 percent of the likely voters polled predicted a recession. The darker mood came as mounting concerns about housing and credit markets pounded Wall Street, and oil prices approached $100 per barrel. (CNBC 1/21/07)
Recession times are increasingly being expected. The coming holiday spending season will likely provide important clues to where consumer spending is headed. Consumer spending is about 70% of the US's GDP. Consumer spending is a key factor in a forecasting a recession.
Saturday, February 20, 2010
Why the Dow Broke 10,000, and Why You Should Still Watch Your Wallet
How did the Dow break 10,000 when the rest of the economy is in the toilet?
1. Corporate earnings are up -- mainly because companies have been cutting costs. Payrolls comprise 70 percent of most companies' costs, which means companies have been slashing jobs. In the end, this is a self-defeating strategy. If workers don't have jobs or are afraid of losing them, they won't buy, and company profits will disappear.
2. Federal borrowing has filled the gap that consumers and businesses created when the latter began to reduce their debt. Federal debt, in other words, has kept the economy from tanking. Can't keep up forever, though.
3. With such horrid employment numbers, Wall Street figures the Fed will keep interest rates low for some time, and continue to flood the economy with money. That's good news for the Street because it means money stays cheap -- and with cheap money the Street can make lots of bets on almost everything under the sun and moon. As a result, the Street's earnings are way up. But this, too, is temporary. At some point the Fed is going to worry about inflation and a falling dollar.
4. Investors of all stripes want to get in early and ride the wave. Pension funds, mutual funds, and other institutional investors figure the bull market has more oomph in it because, well, other investors will jump in. Think Ponzi scheme. Nice for now, but watch out if you're one of the last in.
In other words, this is all temporary fluff, folks. Anyone who hasn't learned by now that there's almost no relationship between the Dow and the real economy deserves to lose his or her shirt in the Wall Street casino.
1. Corporate earnings are up -- mainly because companies have been cutting costs. Payrolls comprise 70 percent of most companies' costs, which means companies have been slashing jobs. In the end, this is a self-defeating strategy. If workers don't have jobs or are afraid of losing them, they won't buy, and company profits will disappear.
2. Federal borrowing has filled the gap that consumers and businesses created when the latter began to reduce their debt. Federal debt, in other words, has kept the economy from tanking. Can't keep up forever, though.
3. With such horrid employment numbers, Wall Street figures the Fed will keep interest rates low for some time, and continue to flood the economy with money. That's good news for the Street because it means money stays cheap -- and with cheap money the Street can make lots of bets on almost everything under the sun and moon. As a result, the Street's earnings are way up. But this, too, is temporary. At some point the Fed is going to worry about inflation and a falling dollar.
4. Investors of all stripes want to get in early and ride the wave. Pension funds, mutual funds, and other institutional investors figure the bull market has more oomph in it because, well, other investors will jump in. Think Ponzi scheme. Nice for now, but watch out if you're one of the last in.
In other words, this is all temporary fluff, folks. Anyone who hasn't learned by now that there's almost no relationship between the Dow and the real economy deserves to lose his or her shirt in the Wall Street casino.
Friday, February 19, 2010
There Was a Reason They Called It... The Casino Economy
by Thomas Croft
02 Jul 03
In the last three years, a 'perfect storm' of rising energy costs, record consumer and corporate debt and massive trade and current account deficits joined with unsustainable investment practices, and resulted in an economic collapse. The first recession since 1929 to be primarily caused by over-investment, these 'collateral damage' investing schemes-in overseas boondoggles and sweatshops, extreme mergers, absurd dot-coms and derivative scams-all came home to roost. Enron used all of these investment tricks and more. The corruption scandals of 2001-2 completed the melt-down. Now, the world is probably in a double-dip recession, thanks partly to the scandal and continuing international disruptions.
The problem with casino bets and Russian Roulette is that somebody always loses. [CounterPunch]
Thursday, February 18, 2010
The fiscal stimulus: ineffective or wrong?
The latest economic data show that output growth has weakened and unemployment is creeping up. The government is worried, with good reason, that the economy is going through a pronounced slowdown, perhaps even a recession. To limit the damage, Congress yesterday approved a battery of fiscal measures. By my reckoning, however, the plan will at best provide a short-lived nudge to consumption, but not employment; at worst, it’ll do nothing.
Starting in May, the government will send $600 checks to individuals ($1,200 for couples and an extra $300 for each child). People who earn too little to pay income taxes, but make more than $3,000, will receive a $300 payment. Payments will total $106 billion and will add to the budget deficit.
Cash outlays are supposed to boost private consumption expenditures and accelerate overall growth. $106b may seem a small stimulus for a $14 trillion economy, but the payments are expected to have a “multiplier effect”: higher demand will prompt businesses to hire more workers, and increased employment will further stimulate private consumption, which in turn will induce more hiring. The process continues ad infinitum. The outlays, therefore, can have a final effect on aggregate demand that is many times bigger than the initial stimulus —hence the name “multiplier.”
The effectiveness of the measure hinges on two factors. First, the fraction of the government outlays that will be spent immediately. According to Bruce Bartlett, previous experiences with tax rebates in 1975 and 2001 indicate that it's small. The recent study by Elmendorf and Furman indicates that it's a 50 percent.
The second requirement, which has received less attention, is that businesses will respond to the initial surge in demand by hiring new workers. If they don’t, then the fiscal package will have no second-round impact on demand, and the stimulus to consumption will total just $50b.
Because the first two quarters of 2008 will be marked by considerable uncertainty about the course of the economy in the medium term, the announcement of the fiscal plan will not have an immediate effect on hiring. Manufacturers may ratchet up their inventories, in anticipation of the small jolt of demand in May, but they will do so by using overtime and temp workers, rather than hiring permanent employees. In the services sector, we won’t see any change in employment until the late spring, and even then employers will similarly meet spikes in demand with overtime hours and temp workers, at least initially. If, come June, forecasts have improved, we may see employment pick up over the fall. But by then the effect of the government checks will have played out. In conclusion, the fiscal package won’t provide any significant boost to employment.
A less obvious reason to reject the stimulus is that the slowdown in aggregate demand is necessary, even healthy. Most of the growth experienced between 2002 and 2006 was based on low interest rates, over-valued real estate, and loose lending standards.
Chart 1, from a story by Michael Mandel at BusinessWeek, tells it all. Mandel estimates that, “if consumer spending had tracked the overall economy over the past decade as it has in the past, Americans today would be spending about $600 billion less a year. The extra spending has amounted to a total of about $3 trillion since 2001.” That extra spending was financed with debt. Quite literally, Americans were borrowing their prosperity from the future —not exactly a sustainable growth path.
Chart 1 (left) and 2 (right). Click to enlarge.
Starting in May, the government will send $600 checks to individuals ($1,200 for couples and an extra $300 for each child). People who earn too little to pay income taxes, but make more than $3,000, will receive a $300 payment. Payments will total $106 billion and will add to the budget deficit.
Cash outlays are supposed to boost private consumption expenditures and accelerate overall growth. $106b may seem a small stimulus for a $14 trillion economy, but the payments are expected to have a “multiplier effect”: higher demand will prompt businesses to hire more workers, and increased employment will further stimulate private consumption, which in turn will induce more hiring. The process continues ad infinitum. The outlays, therefore, can have a final effect on aggregate demand that is many times bigger than the initial stimulus —hence the name “multiplier.”
The effectiveness of the measure hinges on two factors. First, the fraction of the government outlays that will be spent immediately. According to Bruce Bartlett, previous experiences with tax rebates in 1975 and 2001 indicate that it's small. The recent study by Elmendorf and Furman indicates that it's a 50 percent.
The second requirement, which has received less attention, is that businesses will respond to the initial surge in demand by hiring new workers. If they don’t, then the fiscal package will have no second-round impact on demand, and the stimulus to consumption will total just $50b.
Because the first two quarters of 2008 will be marked by considerable uncertainty about the course of the economy in the medium term, the announcement of the fiscal plan will not have an immediate effect on hiring. Manufacturers may ratchet up their inventories, in anticipation of the small jolt of demand in May, but they will do so by using overtime and temp workers, rather than hiring permanent employees. In the services sector, we won’t see any change in employment until the late spring, and even then employers will similarly meet spikes in demand with overtime hours and temp workers, at least initially. If, come June, forecasts have improved, we may see employment pick up over the fall. But by then the effect of the government checks will have played out. In conclusion, the fiscal package won’t provide any significant boost to employment.
A less obvious reason to reject the stimulus is that the slowdown in aggregate demand is necessary, even healthy. Most of the growth experienced between 2002 and 2006 was based on low interest rates, over-valued real estate, and loose lending standards.
Chart 1, from a story by Michael Mandel at BusinessWeek, tells it all. Mandel estimates that, “if consumer spending had tracked the overall economy over the past decade as it has in the past, Americans today would be spending about $600 billion less a year. The extra spending has amounted to a total of about $3 trillion since 2001.” That extra spending was financed with debt. Quite literally, Americans were borrowing their prosperity from the future —not exactly a sustainable growth path.
Chart 1 (left) and 2 (right). Click to enlarge.
Wednesday, February 17, 2010
Recession Fears Grow
Reuters reports that "Unsold goods are piling up in warehouses as the housing meltdown and soaring oil prices strain consumers, raising fears that already glum fourth-quarter growth prospects may tip toward recession."
"The sluggishness is apparent in the retail sector, where 70 percent of chain stores posted weaker-than-expected October sales results, according to research firm Retail Metrics.
"The sluggishness is apparent in the retail sector, where 70 percent of chain stores posted weaker-than-expected October sales results, according to research firm Retail Metrics.
"We expect the challenging retail environment to continue for the foreseeable future," Mike Ullman, chairman and chief executive officer of department store chain J.C. Penney (JCP.N: Quote, Profile, Research), said last week. He added that the company would keep inventory levels tight through 2008."
Respected economist Nouriel Roubini writes "Any recession call for the U.S. is clearly dependent on US consumption faltering. Since residential investment is only 5% of even a worsening housing recession cannot – by itself – trigger an economy-wide recession. Rather, since private consumption is over 70% of aggregate demand a sharp and persistent slowdown in consumption growth – below 1% or even negative - is necessary to trigger a full blown recessionTuesday, February 16, 2010
The Audacity of Greed: How Private Health Insurers Just Blew Their Cover
The health-insurance industry has finally revealed itself for what it is.
Background: The industry hates the idea that's emerged from the Senate Finance Committee of lowering penalties on younger and healthier people who don't buy insurance. Relying on an analysis by PricewaterhouseCoopers, insurers say this means new enrollees will be older and less healthy -- which will drive up costs. And, says the industry, these costs will be passed on to consumers in the form of higher premiums. Proposed taxes on high-priced "Cadillac" policies will also be passed on to consumers. As a result, premiums will rise faster and higher than the government projects.
It's an eleventh-hour bombshell.
But the bomb went off under the insurers. The only reason these costs can be passed on to consumers in the form of higher premiums is because there's not enough competition among private insurers to force them to absorb the costs by becoming more efficient. Get it? Health insurers have just made the best argument yet about why a public insurance option is necessary.
Right now they run their markets and set their prices, and pass on any increased costs directly to consumers. That's what they're threatening to do if the legislation attempts to squeeze, even slightly, the colossal profits they plan to make off of thirty million new paying customers.
They want every penny of those profits. They demand every cent. And if the government dares raise their costs a tad higher than they expected when they first signed on to support the bill, they'll pass those costs on to consumers in the form of higher premiums. They can carry out their threat only because they have unaccountable, untrammeled market power.
But they've now hoisted themselves on their own insured petard. They've exposed themselves. If they had to compete with a public insurance plan, they couldn't get away with this threat. They couldn't pass on the extra costs. They'd have to compete with a public insurance option that forced them to give consumers the best deals possible.
Now's the time for Congress and the White House to say to the insurance industry: You want to play hardball? Okay. We'll play it, too. You didn't want a public insurance option. That was one of your conditions for supporting the bill. You wanted gigantic profits from having thirty million new paying customers and the market to yourself. The Senate Finance Committee and the White House agreed because they wanted your support and were afraid of the negative ads and hurricane of opposition you could finance. But you're even greedier than we imagined. And now you've demonstrated that greed to the American people. They don't want to turn over even more of their hard-earned money to you. So, insurance companies, we've got news for you. We're going to make sure Americans have the freedom to choose a public insurance option that's cheaper and better, and you're going to have to work hard to keep them your customers.
Background: The industry hates the idea that's emerged from the Senate Finance Committee of lowering penalties on younger and healthier people who don't buy insurance. Relying on an analysis by PricewaterhouseCoopers, insurers say this means new enrollees will be older and less healthy -- which will drive up costs. And, says the industry, these costs will be passed on to consumers in the form of higher premiums. Proposed taxes on high-priced "Cadillac" policies will also be passed on to consumers. As a result, premiums will rise faster and higher than the government projects.
It's an eleventh-hour bombshell.
But the bomb went off under the insurers. The only reason these costs can be passed on to consumers in the form of higher premiums is because there's not enough competition among private insurers to force them to absorb the costs by becoming more efficient. Get it? Health insurers have just made the best argument yet about why a public insurance option is necessary.
Right now they run their markets and set their prices, and pass on any increased costs directly to consumers. That's what they're threatening to do if the legislation attempts to squeeze, even slightly, the colossal profits they plan to make off of thirty million new paying customers.
They want every penny of those profits. They demand every cent. And if the government dares raise their costs a tad higher than they expected when they first signed on to support the bill, they'll pass those costs on to consumers in the form of higher premiums. They can carry out their threat only because they have unaccountable, untrammeled market power.
But they've now hoisted themselves on their own insured petard. They've exposed themselves. If they had to compete with a public insurance plan, they couldn't get away with this threat. They couldn't pass on the extra costs. They'd have to compete with a public insurance option that forced them to give consumers the best deals possible.
Now's the time for Congress and the White House to say to the insurance industry: You want to play hardball? Okay. We'll play it, too. You didn't want a public insurance option. That was one of your conditions for supporting the bill. You wanted gigantic profits from having thirty million new paying customers and the market to yourself. The Senate Finance Committee and the White House agreed because they wanted your support and were afraid of the negative ads and hurricane of opposition you could finance. But you're even greedier than we imagined. And now you've demonstrated that greed to the American people. They don't want to turn over even more of their hard-earned money to you. So, insurance companies, we've got news for you. We're going to make sure Americans have the freedom to choose a public insurance option that's cheaper and better, and you're going to have to work hard to keep them your customers.
