Tab Clearing 2

A really interesting look at state budget deficits.

History of deficits and surpluses in the USA.




A look at, among other things, the difference between the headline unemployment numbers and the true, revised, numbers quietly released later.




 The general thought by professionals is that the recent jobs reports have been a little screwy.
Here's the head economist for Gallup explaining why.
Essentially, the labor force continues to shrink.  Explains apparently falling unemployment numbers, not even close to good news.
And here's Jack Welch explaining how stratospherically rapidly the economy would have to grow for the numbers to actually be real and be good news.

The economy is not in a free-fall. Oil and gas are strong, automotive is doing well and we seem to be seeing the beginning of a housing comeback. But I doubt many of us know any businessperson who believes the economy is growing at breakneck speed, as it would have to be for unemployment to drop to 7.8% from 8.3% over the course of two months.
The reality is the economy is experiencing a weak recovery. Everything points to that, particularly the overall employment level, which is 143 million people today, compared with 146 million people in 2007.

And finally, it turns out that America expects its rich to pay a larger share of taxes than ANY OTHER industrialized nation.  

"The United States is actually more dependent on rich people to pay taxes than even many of the more socialized economies of Europe. According to the Tax Foundation, the United States gets 45 percent of its total taxes from the top 10 percent of tax filers, whereas the international average in industrialized nations is 32 percent. America’s rich carry a larger share of the tax burden than do the rich in Belgium (25 percent), Germany (31 percent), France (28 percent), and even Sweden (27 percent)."

Tab Clearing

Long overdue.  Many of these lack deserve much more explanation.  Have fun.


http://cnsnews.com/news/article/us-governments-foreign-debt-now-47495-household

 Since January 2009, the total U.S. government debt held by foreign interests has climbed from approximately $27,653.29 per household to approximately $47,494.93 per household—an increase of about $19,841.64 per household.

 http://www.federalnewsradio.com//189/3085581/Pay-gap-between-government-private-sector-widens-to-34-percent

Depending on methodology, federal employees earn less, the same, or more than their private sector counterparts.  The divergent results seem to hinge one how you account for non-wage benefits.

A list of failed/failing federal green energy grants.

1. Evergreen Solar ($24 million)*
2. SpectraWatt ($500,000)*
3. Solyndra ($535 million)*
4. Beacon Power ($69 million)*
5. AES’s subsidiary Eastern Energy ($17.1 million)
6. Nevada Geothermal ($98.5 million)
7. SunPower ($1.5 billion)
8. First Solar ($1.46 billion)
9. Babcock and Brown ($178 million)
10. EnerDel’s subsidiary Ener1 ($118.5 million)*
11. Amonix ($5.9 million)
12. National Renewable Energy Lab ($200 million)
13. Fisker Automotive ($528 million)
14. Abound Solar ($374 million)*
15. A123 Systems ($279 million)*
16. Willard and Kelsey Solar Group ($6 million)
17. Johnson Controls ($299 million)
18. Schneider Electric ($86 million)
19. Brightsource ($1.6 billion)
20. ECOtality ($126.2 million)
21. Raser Technologies ($33 million)*
22. Energy Conversion Devices ($13.3 million)*
23. Mountain Plaza, Inc. ($2 million)*
24. Olsen’s Crop Service and Olsen’s Mills Acquisition Company ($10 million)*
25. Range Fuels ($80 million)*
26. Thompson River Power ($6.4 million)*
27. Stirling Energy Systems ($7 million)*
28. LSP Energy ($2.1 billion)*
29. UniSolar ($100 million)*
30. Azure Dynamics ($120 million)*
31. GreenVolts ($500,000)
32. Vestas ($50 million)
33. LG Chem’s subsidiary Compact Power ($150 million)
34. Nordic Windpower ($16 million)*
35. Navistar ($10 million)
36. Satcon ($3 million)*

  Another electric car company failure.

The administration of BHO is breaking the law and not issuing reports on the success/failure of the stimulus package. 

Welfare Waivers

This is an excellent summary of the history and current status of welfare reform efforts.  A well-researched article.  

Re the recent HHS memo watering-down the work requirement:

Now, however, welfare reform is potentially being undercut. In July 2012, the federal Department of Health and Human Service (HHS) announced that it would begin "encouraging states to consider new, more effective ways to meet the goals of TANF, particularly helping parents successfully prepare for, find, and retain employment." To that end, HHS issued a "guidance" memorandum expressing its willingness to unilaterally waive existing TANF rules "to allow states to test alternative and innovative strategies, policies, and procedures that are designed to improve employment outcomes for needy families."[2] The HHS memo undermines TANF's work rules by:

• Doing away with work participation rates in some instances;
• Extending periods of education and training;
• Liberalizing the counting of subsidized employment; and
• Discouraging one-time non-assistance payments.

The Obama administration said that the change was a response to requests by governors for more flexibility in administering the program and that it was not intended to "waive or dismantle" the work requirement.[3] But in some key respects, the HHS waiver is inconsistent with this statement. The language itself signals the agency's willingness to water down the program's current focus on work participation rates as the primary test of each state's compliance with the goals of welfare reform.

Assortment of Charts

Presented for your pleasure.  From HERE.

GM Bankruptcy V2.0

As a result of the VERY political way that the Federal bailout of GM was managed, to include the unusual bankruptcy process, GM now stands in jeopardy of losing everything.  Essentially the judge who oversaw the initial process may reopen the case because he feels information was kept or even hidden from him regarding the full disposition of old GM's full assets and liabilities. 

 If the case is reopened, all of GM's old liabilities and obligations come roaring back as well as an obligation to immediately repay the remaining taxpayer investment.  Repaying the taxpayer will consume almost all of GM's operating cash, leaving them in a very difficult situation.

Why is this such a mess?  It appears to many that b/c the FedGov was looking for short-term political gain they didn't take sufficient care with the process.

“They didn’t care about the company long-term,” risk analyst Whalen said. “The process was politically driven to be done as fast as possible, focused on securing short term support from the [United Auto Workers union].”
The allegation of union favoritism has dogged the Obama administration throughout the auto bailout. In addition to General Motors Canada’s debt, Treasury faced similar charges while handling the bankruptcy of Delphi, GM’s independent parts supplier.
“The government did a sloppy job with the bailout,” the bankruptcy expert said. “We have a fully functioning bankruptcy process based on centuries of common law, standard ways of doing things.”
“The federal government didn’t want pension plans to bear any costs associated with traditional bankruptcies … and now you’re faced with this.”

Again, this is the problem with crony/political capitalism.  Not only does government have a terrible record of picking companies that are unfit, but governments also have a terrible record of short-cutting market processes to deleterious effect. 
The full article is HERE.

When Government Decides...

Even giving the maximum benefit of the doubt, the green energy subsidy debacles of the past three years at best can be said to amply illustrate how difficult, nea impossible, it is for the government to correctly pick economic winners.

I'll say it again, because the government picks winners based at least in part on politics, decisions of who the government will support need not be based on any economic reality related to actual potential value created for/in the market.

Case in point continues to be Solyndra.  Now the IRS is saying that within a very short time of receiving the 1/2 billion Dollars of tax payer money, the Solyndra executives were conspiring to use the failing company - which they knew was failing - as a questionable tax shelter.

Article here.

Funny Polls

Polls like THIS are funny.  Sure, you can show that 79% of Americans believe that all Americans should pay income tax.  Allow me to point out that 79% is substantially higher than the percentage of Americans that actually DO pay income tax.  So there is some population of people who do not pay income taxes but believe that they, and everyone should. 

National Deficit

On October 1, 2012 additions to the National Debt for 2012 up to that date surpassed the total increase of the debt for ALL OF 2011.  In other words, the federal government accrued as much debt in nine months this year as they accrued over the whole of last year. 

Energy Expenditures

Lower-income households spend a much greater percentage of their income on energy than to higher-income households.  Therefore, an increase in energy prices will disproportionately hurt low-income families.  Over the past couple of years energy (and food) prices have been steadily increasing.  Where are the administration's actions to demonstrate that they actually, as they say, care for the poor and middle-income Americans?  They should be taking every options to reduce energy prices, not doing everything in their considerable power to increase energy prices. 

Chart from HERE:

Change in Incomes by Quintile

Look at this chart.   It's from here, investors.com.  Now, you cannot pin the cause on any one factor, but the reality displayed in the chart above certainly does put the lie to the idea that the middle class in this country saw any kind of a recovery in 2011. 

What does it mean? Briefly, in 2011 the 20% of households with the highest annual income were the only group of households to see their average income increase.  

Foreign Exchange Links

Two good links for those of you interested in International Currency Exchange. 

http://www.newyorkfed.org/markets/triennial/fx_survey.pdf

http://www.bis.org/press/p101201.htm

Presidential Impact

I found a really interesting way to assess how the policies of a president impact the nation.  You can get the full description here.  

And here is a chart that shows job growth overlaid with the impact of presidential policy. 








So what this essentially says is that in the period of time influenced by GW Bush's policies the number of employed Americans was increasing.  In the period of time exclusively governed by Obama's policies, the number of employed Americans has remained flat.  

Small Business Owners Feeling Queasy

According to this article, America's small businesses are not feeling particularly hopeful about this economy.  Key points:

• 67 percent say there is too much uncertainty in the market today to expand, grow or hire new workers.
• 69 percent of small business owners and manufacturers say President Obama’s Executive Branch and regulatory policies have hurt American small businesses and manufacturers.
• 55 percent say they would not start a business today given what they know now and in the current environment.
• 54 percent say other countries like China and India are more supportive of their small businesses and manufacturers than the United States.

QE3

By now you know that the FED has begun inflating the US Dollar again.  Whether this will do what they say they want it to or not, well, we just don't know yet.  This author is doubtful, especially given what he feels are already some fairly negative signs. 

The Insulation of DC

Once again, the DC area has several of the nation's wealthiest counties.  This year greater DC has 7 of the 10 counties with the highest annual income.  This is up from previous years.

To me, this is a very obvious symbol of just how very out-of-touch the DC area is from the rest of the country.  Government jobs and government-funded jobs (gov/defense contractor) are simply insulated from the harsh economic realities facing most of the nation right now.  

You can find the information here, in the 2011 American Community Survey conducted by the Census Bureau. 

Is Great Britain's Downgrade Next?

In this paper the authors make the case for an impending downgrade of the British Pound.  Essentially it boils down to the Pound being in no better shape than the Euro, but currently looking decent only because everyone's attention is on the Euro and Dollar. 

Consequences?  Massive loss of confidence in currency markets.  Maybe a little buoying of Dollar/Euro, but not much.  Movement away from cash instrument. 

The GM bailout from a fan, and why he wants it to end

Ed Whitacre, the author of this article, is a former CEO of GM and a fan of the auto bailout.  Though I disagree with him on the significance/importance/propriety of the bailout, I agree with him that it is time for GM to be General Motors, not Government Motors. 

The result: GM spends an awful lot of time checking in with the people who administer TARP over everything from hiring to executive compensation and management. For a global company, that adds up to a lot of distraction. 

....

GM is now trying to convince Treasury to sell, for some of the reasons I have mentioned. These same reports say that the government may be willing, but not at the current stock price. GM stock hasn't performed as well as everybody would like, but I remain hopeful that it will rebound as the global economy improves.
Meantime, life in the hypercompetitive world of GM goes on. The company already answers to a lot of constituencies: stockholders, unions, Wall Street and global competitors. Adding TARP to the mix for another few years, or even another few quarters, is not fair to GM or to the one million people it employs, directly and indirectly.

Corporate Cronyism

I've written about crony capitalism before.  Essentially it is businesses attempting to use the coercive power of government for their own ends, either to regulate their competition or to seize money from taxpayers for the business. 

Charles Koch has written a nice column in the WSJ address this topic.  

Selected quote:

Trouble begins whenever businesses take their eyes off the needs and wants of consumers—and instead cast longing glances on government and the favors it can bestow. When currying favor with Washington is seen as a much easier way to make money, businesses inevitably begin to compete with rivals in securing government largess, rather than in winning customers.
We have a term for this kind of collusion between business and government. It used to be known as rent-seeking. Now we call it cronyism. Rampant cronyism threatens the economic foundations that have made this the most prosperous country in the world.
We are on dangerous terrain when government picks winners and losers in the economy by subsidizing favored products and industries. There are now businesses and entire industries that exist solely as a result of federal patronage. Profiting from government instead of earning profits in the economy, such businesses can continue to succeed even if they are squandering resources and making products that people wouldn't ordinarily buy.

Spend Like a Rich Man

This article has a very interesting discussion of how the very-rich (net worth in excess of $25Million) spend their money each year.  Essentially they spend money on their cars, houses, and trips.  Oh, and something not mentioned by the article, they GIVE.  LOTS.  See the very interesting chart below.  I find the giving very interesting b/c Americans are constantly told that the rich don't care about anybody else, that they got rich by basically being terrible.  You know, maybe not.

There is this theory called "crowding out" and it is the idea that as government takes more responsibility than private citizens take less - due to two reasons.  First, they simply have less money as government takes taxes to pay for the "charity".  Second, private citizens see reduced need.  Right or wrong, something about human nature likes to be needed.  To me, the great amount of giving by the wealthy is a very positive sign.

 

Fiscal Cliff

This article presents a view saying that we might actually be better off as a country if we go over the fiscal cliff facing us in January. 

I do not know.  As an economist I think the tax increases in January will be devastating to a already-slow recovery (the article does not address taxes).  I think the spending reductions are crucial, that the article gets right, but I think the structure of the spending cuts is going to be quite wrong.

As to mindset, yes, I think that Congress and the American need a reminder that there are consequences for stupid spending policies and electing politicians that support such policies.  It may be good for Americans to see that spending cuts do not lead to a collapse of all they hold dear.

On the other hand, politicians will be able to magnify any harms, real and imagined, for leverage to avoid future spending cuts. 

Politics > Contract

In a further revelation about how entirely terrible the auto bailouts were, the Daily Caller has been doing some good investigative journalism and uncovered evidence that administration officials intentionally subverted contract law, pension agreements, and bankruptcy law in an effort to help union members and do harm to non-union employees. 

This is directly related to economics because as the government expends efforts to determine winners and losers in the marketplace the co-ordinative ability of the market is severely compromised.  People begin to make business and personal choices based not market support, but on the likelihood that government will support them.  This leads to misallocation of resources - harmful because of the money spent, but much more harmful because those resources (money, people, etc...) are not being used to produce something people actually want to buy. 

The several dozen failed fedgov investments in green energy projects come to mind here. 

Pocket Change

The Treasury is estimating that the fedgov will lose $25B of the $85B invested in the auto company bailout. 

Essentially, the administration's rosy expectation of recouping our expenditure rests on being able to sell GM stock at, what now looks like, an unreasonable high price.

Not that this alone is enough to declare the auto bailout terrible.  But it does mean that not only do you have to think about the interest expense of borrowing the $85B to lend to GM/Chrysler, but you also have to think about the $25B expenditure.  Those jobs the bailout "saved" are pretty expensive after all.

And I'm completely avoiding the issue of whether the bailouts were a good idea or not (hint, they weren't).

$16,000,000,000,000.00

Tuesday the national debt crossed the $16T mark.

To whom do we owe that money?  Read HERE for the scoop. 

Chinese Manufacturing Troubles

In line with what economists have been saying is inevitable, Chinese manufacturing is registering a significant decline.  See HERE,for example. 

Inventories are piling up, factories are running at around 65% capacity, steel and iron production is flat, some industries report 30% declines, and profitability is vanishing. 

For years some have speculated that Chinese growth shows how a market can be contained, harnessed, and controlled to serve political masters. Even the Chinese government cannot hide from the laws of economics.

Economists already knew that. 

Why?  Because by containing the free-market activity and growth in SEZs China has not allowed the infrastructure to develop in a natural and efficient manner.  Too many people are in the SEZs, and virtually no economic activity takes place outside.  Now they have reached a point where the SEZs can only grow at the pace of Western growth (technology/technique), and b/c the government has so contained peoples' energies, there is nowhere else ready to grow.  Additionally, there is no where else, geographically, conducive to rapid growth. 

Unseen: Faucet Edition

I recently had to replace the aerator in our kitchen faucet.  The new unit is a "water saver" that has a 25% reduced flow compared to the original unit.  I looked for an original 2ga/minute aerator and couldn't find one to fit our faucet.  The new unit works ok.  Sure it takes longer to fill a pitcher.  Sure it makes a little more noise.  Sure, I find myself turning the handle on full more frequently than I used to.  But I suppose it might be saving some water somewhere. 

My wife though was just telling me how the "water saver" actually takes longer to rinse dishes.  The new unit takes longer to rinse soap and creates more bubbles on the dishes while rinsing.  So you have reduced flow, but longer faucet run-time. 

Does it save any water?  I kind of doubt it.  Reminds me of those "water saving" toilets that frequently must be flushed repeatedly. 

Food Prices Increasing

The BBC, as well as other sources, is reporting that food prices have increased by about 10% around the world in the month of July alone.  This is huge! A breakdown of some price increases:  "From June to July this year, corn and wheat prices each rose by 25% while soybean prices increased by 17%, the World Bank said. Only rice prices decreased - by 4%."

A variety of causes are to blame, but pretty much all of them are largely due to environmental factors.  While droughts and other weather conditions are mostly to blame, the huge increase in the price of corn is due in no small way to the  40% of US corn that is destroyed manufacturing corn ethanol. 40%!!  That's outrageous!!

If at first you don't succeed, try again?

Though it has been tried many times the world over, Great Britain is considering a supplemental tax on the wealthy.  If the goal is to reduce the number and wealth of wealthy Britons, the tax will be a success.  Every time the wealthy have been singled out for special taxes, the taxing authority has found itself surprised by lower revenues than expected and fewer wealthy people to tax. 

At some point this outcome should cease to be a surprise. 


As to why taxes on the wealthy never work the way they are sold, it is really very simple.  People like to keep what they perceive as theirs.  Doesn't matter if you believe this is a moral, ethical, desire, it is a true and common desire.  Combine this desire with the reality that the most wealthy in any jurisdiction possess substantial ability to legally move their wealth and/or themselves out of any tax jurisdiction.  Presto chango! Wealth rapidly moves out of areas where it is made to feel unwelcome. 

Such relocation of wealth has shown itself to be true regardless of the size of the taxing authority.  Cities, counties, districts, states, countries, trading blocks - all have been "surprised" by the unsurprising. 

If this proposal is implemented, Great Britain will see a decrease in the amount of personal wealth possessed by Britons and subject to British taxing authority.  They will very likely see a decrease in the number of subjects that possess such wealth.

Of course, that just may very well be the point.  

Blog Changes

Argh!  Lots of white!  I'm making some changes to the layout of the blog.  Basically I was unhappy with the narrow column format of the old layout.  Patience grasshopper.

Proper Estimation of Capital Gains Taxes

When looking at the percentage of taxes paid by an individual, you should always look at the amount of money retained by the individual vs the amount of money paid in taxes.  Essentially then, the tax rate paid is the amount by which in-pocket money is reduced compared to total earnings. 

This works pretty well for income taxes.  Capital Gains Taxes are a slightly different matter.  These are taxes on investment, which typically means taxes on profits from stocks. 

If corporate profits are disbursed to you, a stockholder, that is money in your pocket.  On that MiyP you than pay income tax.  But wait - there would be even more MiyP but for business taxes as well.  See, b/c the corporate profit is being disbursed to you, if the business didn't pay taxes you would get more MiyP from your investment.  So given that we are looking at effective tax rate as money in pocket vs total earnings, a business tax paid by a business you own stock in IS a tax on your income. 

If you apply this to the wealthy, who tend to gain a large portion of their income through capital gains, you realize that far from only paying 15% on their capital gains income, the government also gets whatever corporate income tax is paid on the portions of companies they own. 

Upshot?  This article talks about Mitt Romney specifically, but it is applicable to everyone in his general situation.  They pay a lot more than 15% taxes.  And, seeing as the average American pays between 10-15% effective tax rate, that means they pay more than the great majority of us. 

Is There a Doctor in the House?

According to this article, 83% of surveyed doctors claimed that Obamacare has caused them to consider leaving the profession. This article adds urgency to the discussion, saying that even now we are not training enough doctors and of those we train, many of them choose specialty fields rather than primary care. 

I don't even has to explain how that fact is bad for you and all of us.

The major cause of both articles is that doctors are not being compensated sufficiently to account for the increasing hassle/cost of being/becoming a doctor.

But wait, aren't healthcare costs zooming skyward?  Yes, they are, but at the same time payments to doctors by the various government healthcare plans are being seriously squeezed.

Essentially doctors are being asked to handle more risk, more limitations, and more paperwork without any increase in compensation, while at the same time more and more people demand services.  And somehow the government expects ever increasing numbers of people to joyfully leap into the abyss of providing primary care.  

Federal Spending and Debt

A selection of facts and charts about national debt, spending, and the drivers of deficit. 

This is a key chart:

National Honesty

The Honest Tea company ran an experiment this summer to see how honest people were in various location around the country over this summer.  Results HERE. 

I was a little surprised to see that even at the least honest location, the significant majority of Americans are honest.  At least in this test. 

Honesty is very important to economics.  Without an understanding and cultural prevalence of honesty, the enforcement mechanisms of government (or even voluntary association) would rapidly be overwhelmed.  The ability to conduct business, execute contracts, have friends watch your bag for a minute, would be buried in a loss of effective property rights. 

Data: European VS US Crime Rates

Short version, the US has much lower violent crime rates than Europe.  Lower property crime than most of Europe as well.  This despite (or is it because) the significantly greater freedom of self defense and weapons in the US.  In fact, the authors themselves called out this point as a potential cause.  Yet more information, data, to highlight the fallacy of American violence. 

Some charts from the article.  Of note is the huge increase of violence in the UK, where not only guns, but also knives and even tools not required by your activities are illegal. 

How is the economics?  Data, statistics, unintended consequences, etc.... 

Moment of Clarity

I recently had a moment of clarity while watching this video.  Whittle is right.  Ryan on the R ticket not only is an excellent tactic to win, but is important even if Obama wins reelection.  Ryan on the ticket means some form of the Ryan plan.  Which means a mandate for fiscal responsibility if R&R win, and a refusal of America to face the music if BO wins.  If America, as a representative republic, is unwilling to elect politicians espousing fiscal restraint, then things are going to get much worse before they get better. 

GAO: EPA Rules Will Increase Electric Cost

The GAO has released a study showing how the EPA's regulations will result in a decrease in the number of coal-fired power plants and an increase in the price of electricity.  Explanation here.

This is essentially the result that was expected by myself and most other economists.  No big surprise. 

CBO Predicts Recession(ish)

The CBO recently released their Budget and Fiscal Outlook.  Among other interesting things, they predict that a slow recovery will continue through the end of this year, to be followed in 2013 by a slight recession.

Their prediction of a recession is predicated on a couple of things all happening at once.  The Bush tax cuts are expiring, automatic spending cuts are scheduled to take place, doctors will be reimbursed less for medicaid, and various stimulus programs are ending.  Though some of these indicators reveal a Keynesian perspective, said perspective really isn't too overwhelming.

As always with CBO numbers, the biggest problem is that they are constrained by law to work with the assumptions politicians give them, to only work with the data in front of them, and to not engage in guesswork about what may happen.  And honestly in this case I am not sure it matters.

I think the massive tax increases headed our way next year are going to do massive damage to our economy.  In fact, the mere expectation of tax increases has already put a damper on business growth and development.

I do not, however, think the other factors mentioned by the CBO are going to create much harm/damage.

Patterns of Charity

Ran across a website with some really interesting information about how Americans give to charity.  Go HERE. 

A few interesting points:
1) Cities tend to give less.
2) Red states tend to give more, while blue states tend to give less.
3) Wealthy people living around other wealthy people give much less than wealthy people living in economically mixed areas. 

Papa John's Pizza and ObamaCare

Papa John (pizza chain founder) has gone on the record stating that ObamaCare will necessitate price increases for pizza sold by his company. 

He also briefly states that, where possible, companies pass costs on to final consumers - a fact well known but often overlooked by most people. 

Rich Getting Poor(er)

See HERE.

Turns out that not only are the wealthiest paying MORE of government revenue, but their wealth is decreasing.  Huh. 

A Tip About Government Spending

Here is a tip.  Government programs nearly always cost more than they are supposed to.  I am not going to delve into the reasons today, but they revolve around incentives and accountability and are inextricable from the nature of government, any government. 

So when we were told that Obamacare was going to cost $900Brillion (still a huge sum), virtually all economists were extremely skeptical.  This skepticism was heightened when it was revealed that the cost estimate included ten years of taxes to support the program and only six years of implementation. 

Earlier this week, it was released by the Senate Budget Committee that the actual cost of the first ten years of implementation is going to be $2.6Trillion.  And that number is based on both rather rosy revenue projections and the typical ignorance of standard government cost growth. 

It will be more, much more, expensive. 

Sneaky Ways to "Decrease" Unemployment

Today the President and HHS announced that they will be considering and granting waivers that allow states to provide welfare benefits to healthy people who are not looking for a job. 

More here.  And many other places....

Here's the deal.  The 1996 Welfare Reform Act, among other things, instituted a requirement that welfare recipients without medical disqualifications pursue employment.  People on welfare do not have to find a job, but they have to look for one, be trained for one, or attend substance abuse counseling.  The intent of this reform was/is to give an incentive (and incentivise the means) for people to get off welfare.

To my knowledge, this decision by the Obama administration does not require states to give welfare to the nonworking able-bodied, but rather would allow states to allow for waivers to do just that.  If this administration's past experience with waivers is any indication, these waivers will be handed out, used, for political reasons. 

But maybe this is really just because this administration really believes that expecting people to find jobs is mean, unfair, and not sensitive enough to the current world.  That's the most benefit of the doubt I can give this decision.

Even when cast in the most positive light possible, something shady still  exists. 

Unemployment is calculated in part by looking at how many people are being helped find jobs through state agencies.  To be counted in the unemployment statistics you must be looking for a job.  So if in some/many states there is some number of welfare recipients who have been looking for jobs as a requirement to receiving their welfare, and suddenly that requirement is removed so they stop looking for work, it will appear that in those states the unemployment rate has decreased - WITHOUT A SINGLE JOB BEING ADDED. 

Obama desperately needs people to think this country is headed somewhere positive.  He has three jobs reports before the election, and he needs them to show positive change.  Is this one way to try to cook the books? 

Come to think of it, most states could show a "decrease" in their unemployment by getting this waiver.  Such a decrease could help incumbent governors get reelected.  I wonder what percentage of Democrat compared to Republican governors who ask for waivers will get them....

This could also be a way to blunt the report that came out last week about how all the states with newly elected Republican governors have seen budget turn-arounds and reductions in unemployment. 

Crafty.  Like with statistics, polls, and so much else in life, the practicing economist always has to look at the data and methods. 

Private City Government

A town in Georgia, Sandy Spring, runs on an almost entirely private, contract, basis.  Everything typically done by local government, except police/fire, is run by private corporations. 

Very, very, interesting read. 

Best State for Starting a Business

Go here.  An interactive map with details about which states are the best for starting and running small businesses.  Pretty interesting - especially if you start to think about the map in the context of which areas of the country are growing and which are not. 

Taxmageddon

You may or may not have heard about this, but given current law, this country will have its biggest tax increase ever Jan. 1, 2013. Taxes will go up an estimated ~$500 Billion dollars.  Immediately.  That is an amount equal to about 20% of total federal government revenue currently. 

Would this help get rid of deficit/debt?  Unlikely.  The .gov almost certainly will not see such an increase in revenue because the estimate assumes people will not change their behavior.  Problem is, we are already seeing people and businesses changing their behavior to prepare for the new taxes.  Less spending/investment, less business expansion, fewer people hired and jobs created. 

The specter of these increased taxes is the single biggest factor creating the current problems in the economy. 


This article is an excellent summary of the issue.

Taxmageddon also contributes to the continuing problem of uncertainty.  As bad as the economic policies enacted by this current administration have been, their incessant discussion about what they might do - what they want to do - is even worse.  Especially given the propensity to use the regulatory process away from voter accountability rather than the lawmaking process. 

You make how much?!

$9.8 Million per Job!  That's the punchline. 

The joke - $9Billion of federal stimulus funding for solar and wind creates merely 910 jobs. And remember, this is stimulus money that is supposedly all about creating jobs, not about furthering an environmental agenda.  So we should expect results, not get mired in a discussion about whether the "green" energy is worth the investment - that was never the question here.   

Consumption Tax

An interesting interview on the process by which we might replace the income tax with a consumption tax.

The State of "Elder Care"

This article has some very interesting, sobering, things to say about the future sustainability of elder care in this country. 

Essentially, in 50ish years social security and medicare alone will be consuming as much of our GDP as the federal government takes in all taxes - assuming continuation of current trends. 

That seems like a long way away.  Tempting to say "ehh, let your kids and grandkids figure it out.  I'll be dead."  And you may be. 

But, long before Social Security and Medicare consuming the entire federal budget, they will put a significant squeeze on education, transportation, judicial, and defense funding. 

And that is without even taking other mandatory spending into account. 

NSF Waste

The National Science Foundation has the "luxury" of not having to worry about the future worth/usefulness of the research it funds.  After all they don't pay for it, the taxpayer does, nor are the grant-makers responsible to the taxpayers.  So I'm not really surprised to see an article like this one, detailing some of the waste and fecklessness at the NSF. 

Inflation? Deflation?

I have long believed that inflation is imminent, but here is a report from some financial advisors arguing that deflation is actually more likely.  

(green) Crony Capitalism

Few things annoy me, anger me, more than Crony Capitalism because not only does it pervert the true market, but it gives people who hate the freedom and prosperity of the market a handy tool to attack "capitalism".  The problem though, is that crony capitalism ISN'T actually capitalism.  Crony capitalism is the operation of businesses, where the profits and sometimes even the losses are assigned to private individuals, but instead of allowing market competition to occur, winners and losers are determined by government intervention.

Customer service is replaced with lobbying, ground-breaking research funding with campaign contributions, and well-deserved bankruptcy with government bailouts that the taxpayer funds but cannot stop.  Businesses that are out-competed, and should restructure or fail, don't because they are politically connected.  Less well-connected businesses that may provide better services or products are forced out by bureaucrats helping their friends.  

Crony capitalism is perversion, and the friends and enemies of the market alike are right to despise. 

But crony capitalism IS NOT a free market and DOES NOT allow the creation of benefits like the free market.  Many who believe they hate the free market actually hate cronyism.  They hate the political corruption, buying of privilege, taxpayer bailouts, and sweetheart deals that they have been told is the fault of the market but is actually cronyism.  

On the other hand, many who hate green technology/energy actually hate the cronyism that typically attends such efforts.  I have absolutely no problem with someone selling/buying "carbon credits", developing new energy storage solutions, researching battery technology -  - as long as no governmental/taxpayer money, encouragement, favors, or special deals are used to encourage the behavior.

At long last the title of this post makes sense.  THIS article discusses how the UN Rio conference on green something or other is densely packed with cronyism.  Every solution/program discussed at the UN conference is centered around using government to control and reward the efforts of private industry.

That is not freedom.  That is control.

Estonia and the Euro

Estonia is doing everything that the conventional "experts" say is wrong.  As a result of a massive decrease in GDP in 2008 (around 17%), Estonia decreased spending on public employees' salaries and benefits, reduced social safety net type spending, and generally tightened its belt. 

According to the experts, this course of action is exactly what struggling EU countries should avoid.

But Estonia is growing.  Faster than anyone else in the EU.  Funny that.  

Time and time again, when truly government-limiting and fiscally-austere measures are enacted, economies grow.  It is no real mystery, it is historical fact.  Somehow though people always manage to be surprised. 

Why do things always go wrong?!

So why do the economic policies and efforts of the political left just about always result in failure?  This article has some good, accessible, insights.

Wrecking the Gasoline Can

Have you bought a new gas can in the last three years?  If you have, it has only one opening in the top.  I bought one, and thought "huh, that's odd, I remember cans having a vent hole". 

Turns out the lack of a vent hole is intentional - and caused by the government. 

Yup, in the name of reducing spills, regulations are decreasing the quality of gas cans and actually increasing spills.  Progress.  

If the Economy is Improving...

...than why...

The linked article gives a series of statements with sources contesting the assertion that the economy is markedly improving. 

US Constitution

By now you have probably heard that a certain US Supreme Court Justice, in Cairo, has stated that the US Constitution is probably not the best model for countries developing their own constitutions currently. 

There are two sides to this story, and her statement may have some credibility, but I don't think that is what she was talking about.  Very interestingly, the statement has provoked much discussion. 

Part of the discussion is this article in the NY Times. 

As an economist, one thing stands out about the US constitution above pretty much all other constitutions.  Our document does not "give" rights, merely states preexisting rights, and none of the rights stated require anything from anyone else.  Nothing in the US Constitution, dealing with the rights of the people, requires action on the part of the government or anyone else to provide that right.  This is far different from the majority of national constitutions, which, as the NYT article points out, typically assure their citizens of the "rights" to food, shelter, education, etc.... 

As an economist, one problem.  Rights to food, shelter, and education require taking from someone else to provide these things.  Who do you take from?  Is that freedom?

Growth is the Answer

More and more I am simply convinced that, while the USA does need to get a handle on spending and there is no reason not to roll-back the 25% across the board increase in agency spending pushed through in 2009, the real solution to the current deficit issues to GROWTH. 

An interesting article I ran across recently uses IRS data to explore the shrinking number of people filing taxes as "millionaires".  Furthermore, those wealthiest among us have seen the greatest decline in their adjusted gross incomes over the last several years.  Interesting.  Really drives home the point that decrease in the income earned by Americans has dramatic effect on federal revenues.

Talking Points

Not a comprehensive look at the economy.  Not each and every one of these is entirely the fault of BHO (thought many of them are).  But the column is not supposed to assign blame to BHO, rather the intent is to provide talking points to respond to various claims by the left (particularly BHO) about things being "unfair". 

Right-to-Work

Right-to-work laws are currently in vogue among conservatives, but they have been favored by economists for a long time.  Essentially a right-to-work law makes "closed shops" illegal.  A closed shop is a unionized company in which everyone employee is required to join the union, if you don't you cannot work there.  This means that you can be interviewed, and hired, by the management of a closed shop, but if you refuse to join the union (perhaps you don't want to pay the dues or you don't like the political activism of the leadership) you can never start your new job. 

This is one of the things Ron Klain, former Chief of Staff to Biden, gets very wrong in a recent column.  In his efforts to paint right-to-work laws in a bad light, Klain not only uses a bad example to explain his topic, but uses misleading information to "prove" his point.

In attempting to prove that RTW laws don't have beneficial affects, he uses information from one state (Oklahoma) and one industry (manufacturing), to talk about how manufacturing jobs continue to leave OK.  Interesting thing, as of right now, unemployment in OK is 6.1%.  That number is 2.2% below the national number.  Those people must be finding jobs somewhere.  The thing about RTW laws is not that they protect one type of work, but that they protect all types of work - especially medium size businesses. 

Oh, and Klain claims that the growth of the auto industry is proof that you don't need RTW laws.  Nevermind that the majority of auto industry growth is taking place in RTW states....

Sowell, Minimum Wage

Thomas Sowell, discussing his experiences with the minimum wage as a teenager. 

Politicians Are People Too

A study by the Washington Post finds significant correlation between the legislative behavior of politicians and their personal interests (homes, family members' employment, businesses, etc...). 

Shock. 

You mean to tell me that politicians sometimes use their positions of power for their own personal gain? 

Economists have actually been saying this since the early 60s.  Frankly, I assumed someone had already done studies on this topic.