Where is the US economy headed?

@Thomas,

Thomas wrote:

(No link, sorry, my online subscription to the Wall Street Journal has expired.)

Oh, Goody! Something we can agree on. I didn't renew because it didn't meet the cost/benefit analysis. They blinked first, and came up with an acceptable $155/year. I accepted.

See? The market place does work.

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Just a little desk clearing on a Saturday afternoon.
Thus far in 2011, the private sector has added some 900K jobs. For all of 2010, the number was more like 860K. (source: Fox News quoting the BLS).
There are those who claim that no progress is being made. That strikes me as being a bit disingenuous. There is no denying that we are not keeping up with net increases in the available labor force.
A saw a stat that, in February of this year 3.1M jobs were being advertised in the help wanted section. I can't vouch for how that number is derived. That, in the article I read, worked out to 1 opening for every 4.4 unemployed person. This compares to something like 1 for every 7 a year and a half ago. The optimal goal is said to be 1:2.
Again, I am not sure about the source. I have never placed a want ad, for example. I rely on referrals from current or past employees and people who get off their butts, come in and actually have done some research into what we do.
Finally, the discussion of job creation should not come down to what jobs people take and how they are earning $X and would now be earning only $X - Y% or how they consider themselves to be over qualified.

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@realjohnboy,

Quote:

Thus far in 2011, the private sector has added some 900K jobs. For all of 2010, the number was more like 860K. (source: Fox News quoting the BLS).
There are those who claim that no progress is being made. That strikes me as being a bit disingenuous. There is no denying that we are not keeping up with net increases in the available labor force.

That picture is skewed, because government job loses have been running north of 20,000 a month, and are quickly ramping up. State and local government alone is predicted to lose 110000 jobs in the third quarter, and that is even before the loss of shadow government jobs (contracted work).

http://money.cnn.com/2011/06/05/news/economy/state_local_layoffs/index.htm

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@hawkeye10,

I wrote a few days ago on the reporting of job gains/losses in the private vs public (particularly state/local governments) thingee. I conceded that that is a bit of a movement of the goal posts.
I only got a response or two - saying that losses in the (bloated?) public sector is a good thing.
Even I, a small e economist, don't like hopping on a different stat when the 1st one doesn't fit my argument. Thanks for your response.

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@roger,

roger, If you had waited a little longer, they would have given you a better deal than the $155/year. I turned down $9.95/month on their last offering.

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I was in favor of the bailouts. I believe we were close to a worldwide economic meltdown.
The various stimuli programs have not worked, in my mind, because they have been too small and they have focused on temporary fixes:
cash for clunkers, first-time home buyers credits, reductions in employee withholding taxes (and a new idea about a reduction on the employer side).
But those are temporary. No employer will make employment decisions based on that.
Employers will hire new employees only if there is work to be done.

I can see the argument for a new stimulus program but it will never happen in Congress unless there are reductions in spending or increases in taxes. The latter is totally unlikely and the former is, in my mind, probably going to be kicked down the road until after the next election.

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@georgeob1,

georgeob1 wrote:

I agree with most of your analysis, but I don't buy the lack of current inflation as causative at all.

I didn't say inflation was "causative", whatever that means. I said it was an empirical test of two economic models, both of which predicted a failure of Obama's stimulus program, but only one of which predicted soaring inflation and interest rates. The Keynesian view of how the macroeconomy works passed the test, the various conservative views flunked it.

georgeob1 wrote:

The fact is that through QE2 and other actions the Fed has kept interest rates abnormally low

. . . which tends to increase inflation, not decrease it, loading the dice in favor of your views. So why do they still flunk the reality test?

georgeob1 wrote:

Do you think a massive "stimulus" with borrowed money would help the Greeks to raise their level of private economic activity and productivity in any lasting way?

Partly yes, partly no. In the short run, it would help them utilize their idle capacity. But in the long run, investment and growth is hampered by a loss of investors' trust, caused by a long strain of fraudulent bookkeeping by the Greek government.

georgeob1 wrote:

I don't. How is their situation different from ours?

In several ways:

The US government, under any administration, keeps its public books with reasonable honesty. The crisis of trust that Greek government bonds are facing right now is very unlikely here.
The US government is free to set its own monetary policy.
As a percentage of GDP, the US's public debt is half that of Greece. To see what that means, let's look at the worst case from your point of view: America enacts the stimulus program I suggested earlier. (That's a trillion bucks a year in deficit-financed government spending, for as many years as it takes for core inflation to rise to four percent.) Even if there's no return on this investment---again, the point is to be deliberately pessimistic---America could keep that going for ten years until its debt reaches Greek' current levels, as a percentage of GDP.

I'm sure there are other differences, but these are the big three that occur to me right now.

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@georgeob1,

The Greek economy is very limited and does not have the worldwide demand of products or services produced in the US - or now in Asia. The Greek economy is primarily based on tourism - or as we say "in the service industry." That's not an easy "product" to export in the world economy, and it's certainly not enough of a money-maker to pay off their debt. The forced austerity program from the lenders only puts them into a catch-22 position of "it's wrong if you do, and wrong if you don't." We can only watch them sink deeper into hot water - or quicksand.

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@realjohnboy,

I favored the original TARP, but got a little queezy about the way they handed congress the equivalant of a ransom note. It was basically "Give us the 700 Billion or the economy sleeps with the fishes". Turns out, the demand was just a number they made up because it sounded good.

Kind of mixed feelings on TARP II, Stim I & II, and QE I & II.

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@Thomas,

Interesting, but I still don't buy it. I have learned repeatedly in turnarounds of failing companies that fat, well funded organizations that inpose only reasonable demands on their people don't grow and don't make money. However goal oriented lean ones usually do. One can always find advisors who will argue for more investments and delayed expectations, however, they rarely deliver the promised results. Cutting cost to achieve profitability followed by a clear focus on growth - even when it seems unreasonable, usually works. Reasonable efforts don't overcome serious obstacles. Creating a nation of passive takers with endless handouts will simply make us like the Greeks - beyond saving and hardly worth the effort (even in NATO aviation exercises we always had to rig the game so it appeared the Greeks won - otherwise they would pack up and go home). I liked the Turks a lot better.

There really is a lot of private capital out there being held out of new investments because of widespread uncertainty about the cost of employee benefits (usually about 29% of direct salary); the financial and environmental regulations that will apply; evident government hostility to business and favoratism to morale destroying unions; and the increased burden of government chicken **** on everything from equal opportunity to now hostile audits of rates and overhead; financial reporting; and proliferating gross receipts taxes (taxes on revenue, not profits) coming from various states. It is getting very hard to confidently predict the return on capital invested, and that is a very strong inhibitor to real investment in the economy.

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Here is what it comes down to: Nothing is perfect in life and the best path to follow is simply the least worst.

Free market capitalism will, inevitably, result in individual victims. We can't all be winners and some small percentage of us will, unfairly, lose.

There is not, however, any economic system in which everyone wins.

The simple minded are attracted to the promise of collectivism: Socialism, Communism, modern America, but they will always be disappointed.

There is no way on God's Green Earth to assure that everyone, irrespective of how hard they wish to work, will share equally in mankind's bounty.

It is utterly ludicrous to think otherwise and yet so many do.

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@Finn dAbuzz,

Finn dAbuzz wrote:

It is utterly ludicrous to think otherwise and yet so many do.

And yet, it's even in our constitution ...

Quote:

Article 20
1. The Federal Republic of Germany is a democratic and social Federal state.

... prohibited to be outlawed by amendments:

Quote:

Article 79
3. Amendments to this Basic Law affecting the division of the Federation into Länder, their participation on principle in the legislative process, or the principles laid down in Articles 1 and 20 shall be inadmissible.

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@Walter Hinteler,

The German constitution does not decree that everyone "share equally in mankind's bounty", as Finn put it. But Central and Northern Europe clearly shows that nations can do a lot to ameliorate inequalities, and that it won't turn them into communist hellholes. The fear-mongering of American conservatives about "Socialism" is just that.

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@georgeob1,

georgeob1 wrote:

Interesting, but I still don't buy it. I have learned repeatedly in turnarounds of failing companies that [. . .]

The economics of countries, and especially of the world as a hole, don't work like the economics of companies. For example, when a company increases worker productivity and cuts down its headcount, investors will view its management as a success. By contrast, if countries do it, their management is judged as a failure. (After all, it's what America is doing right now: productivity is up, employment way down.) Analogies between business economics and macroeconomics are mined with fallacies of composition. I reject any line of reasoning that is based on this supposed analogy.

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@Thomas,

Thomas wrote:

The German constitution does not decree that everyone "share equally in mankind's bounty", as Finn put it.

But it would be nice Very Happy

... the 'Basic Law', however, indeed does'nt enumerate specific social duties of the state. (That's done by laws .... and rulings of the Federal Constitutional Court.)

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@Thomas,

Thomas wrote:

georgeob1 wrote:
Interesting, but I still don't buy it. I have learned repeatedly in turnarounds of failing companies that [. . .]

The economics of countries, and especially of the world as a hole, don't work like the economics of companies. For example, when a company increases worker productivity and cuts down its headcount, investors will view its management as a success. By contrast, if countries do it, their management is judged as a failure. (After all, it's what America is doing right now: productivity is up, employment way down.) Analogies between business economics and macroeconomics are mined with fallacies of composition. I reject any line of reasoning that is based on this supposed analogy.

And yet there are observable differences in the macroeconomic behavior of various countries . Some are more frugal than others; some more productive; some more wasteful. To what do you ascribe these differences? Or do you believe that the "laws" of economics aren't affected by such behaviors and apply immutably and without variation everywhere?

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@Thomas,

That's also how I see it; many developed and developing countries are also strong economies compared to many countries that are struggling. There are too many variables in any economic system that cannot be compared to others that simply.

Greece is a good case in point; their economy is based primarily on tourism, and their government's ability to spend money they don't have will be destructive - not only to their own country, but for the Euro.

On the other hand, there are countries like Germany that uses the same currency, but their economy's strength is based on their ability to export their products and services around the world that is very competitive in the world marketplace.

It is only surprising to me that the Euro countries allowed countries with very little ability to compete in the world marketplace to become a member of their currency. It immediately impacted their inflation to a level they could not deal with it, because they lost their ability at monetary policy.

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@georgeob1,

georgeob1 wrote:

And yet there are observable differences in the macroeconomic behavior of various countries .

True, and comparing them to each other is perfectly valid. It's your comparing countries to companies I object to. The former is apples-to-apples, the latter is apples-to-oranges.

georgeob1 wrote:

Or do you believe that the "laws" of economics aren't affected by such behaviors and apply immutably and without variation everywhere?

As a general matter, of course I believe that economic productivity, equality, and employment are affected by a country's policy decisions. But in the particular matter you brought up, I don't believe the correlation between productivity and frugality is especially tight. If you were to draw a scatter plot of each country's public debt, or each country's public deficit, against their respective GDP, it would look much more similar to a cloud than to a downward-sloping line. The current focus on debt and deficit exaggerates the importance of a secondary problem and distracts from tackling the real ones.

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@Thomas,

OK, perhaps a concrete example might better illustrate my point. Japan has a very high level of government debt relative to GDP, much higher than ours and in the same range as that of Greece. However the Japanese are a nation of savers and the vast majority of that public debt is held by the Japanese people themselves, and it is therefore an asset to them. In such a circumstance the negative effects of deficit spending and the dangers associated with such a high cumulative debt are much les than would be the case if the public debt were held by foreign governments or banks. Certainly no one is concerned about the possibility of a default by Japan as long as their population is willing to buy the governments bonds at a low rate of return.

There are some negative effects as evidenced by the relative stagnation of Japan's economic growth, but default or financial collapse is not a concern, as it is in the several troubled EU countries or even the United States. Japan has engaged in massive "stimulus" funding by the government in the form of sometimes marginally useful infrastructure projects. I believe that indirectly that and the massive government borrowing from the people have contributed indirectly to the lack of economic growth there. Other key factors, such as demography and the proping up of "zombie" corporations theough continued loans from insecure banks have also contributed to this.

All of these are factors recognized by economists, but not generally included in the macroeconomic rationalization of political arguments over policy.

Our economy is increasingly under the control & regulation of various regulatory bureaucracies that in their own way propagate a sclerosis throughout the economy and a passivity among the population. Innovation and wealth creation are usually the actions of often cantankerous individuals, and not the actions of self-styled "progressive bureaucracies".

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@georgeob1,

The major handicap for the Japanese are two-fold; the first is the two-decades old recession that their over-valued real estate have caused, and the second is the aging of their population.

Their overriding major handicap has been that Japan has very little in material resources, and almost everything must be imported, but that's been true since before WWII.

Japan's tsunami has created another handicap for them that has affected most developed economies - including the US. Their major industries were harmed, and it will take many years for them to recover from this tragedy.

It's a wonder with all their handicaps that they remain the third strongest economy in the world.

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Where is the US economy headed?

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