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Pity Romney

Maybe not.

But on purely humanitarian grounds you have to feel sorry for him. Such is the toxic mix of the Republican platform that in order to make himself appear less plutocratic and to show his common touch he has to talk glowingly of his Romney care health reforms in Massachusetts, which is anathema to his party’s base.

Damned if you do. Damned if you don’t. What fun.

One the one hand he has to appear in public and berate those reforms as being anti-American, and on the other he has to appear in public to laud them as being a product of his socially aware and sensitive side.

This ought to be easy for him by now.

After all he has argued we don’t need to do anything for the uninsured because they have access to emergency rooms; whilst during a prior incarnation he argued that reliance on emergency rooms was akin to socialism – gasp – because it meant that society as footing the bill collectively, hence the need for the reform that became known as Romney Care.

At least it’s entertaining. You never know quite what he’ll promise next as he flips and flops about on the shifting sands of the GOP’s policy beach.

Meanwhile there is at least one area where he doesn’t contradict himself. Not yet. Not publicly. That is in his much hyped tax plan. He promises to reveal the content of this black box during the presidential debates. Up until then he won’t add any detail at all. I look forward to his revelation with bated breath. As far as I can tell, and admittedly this is based on what little information I have, he will have to repeal the rules of arithmetic and toss out the laws of physics to make his policy work. This is because of his avowed intention to make it revenue neutral. Quite how you cut taxes for everyone yet keep tax revenues constant is beyond me. But that’s because I don’t believe in supply side magic. I guess, as they say, you make it up in volume.

Magic, self-contradiction, and a willingness to be vague. That’s the ticket!

Actually we ought not take pity on him. His delusions of grandeur and his plutocratic arrogance are what drove him into the morass. This is s self-inflicted drubbing. Let’s hope it gets him off the stage for good.

Addendum:

Perhaps we ought to pity Fox News also. The recent trend in the polls showing a sharp turn towards Obama defies their preferred narrative. So much so that they’ve taken to calling the polls false, misleading, and probably rigged by the left leaning media. They argue that the purpose of this rigging is to discourage Romney supporters and assure Obama of an unearned victory. The only problem with this story is that Fox’s own poll say the same thing: it has Obama up by a 6%+ and growing lead. Maybe Fox is too honest to rig its poll? Maybe it is too incompetent? Maybe it can’t be bothered? Or maybe, just maybe, Obama is more popular than Romney. Nah. That can’t be right.

Oh well.

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Here We Go A-Wallowing

This is what floundering looks like. Well, perhaps I am being a bit harsh. After all we had a couple of good reports earlier this week, and today’s news on new claims for unemployment assistance is fairly decent. But the final revision of second quarter GDP and the durable goods data confirm that the economy is best described as being a doggie paddle swim rather than a free-stroke. There’s a lot of splashing but not a lot of movement.

The second quarter saw GDP rise a paltry annualized 1.3%. That’s nowhere near good enough to resolve our employment problems and leaves us very vulnerable to the twin impending crises of the Euro’s ongoing unravelling and our own self-inflicted budget impasse. We have precious few degrees of freedom which means that everything needs to go well – which I doubt they will – if we are to avoid even slower growth in upcoming quarters.

Recall that the last estimate for second quarter GDP was 1.7%, so the final tally represents more pessimistic view and confirms what we all felt about the midsummer: we became becalmed. This is especially downbeat because the two major factors contributing to the downward revision are exactly those we are hoping will drive us into a more rapid recovery. Personal consumption growth was revised down from 1.7% to 1.5%; and business investment growth was revised down from 4.2% to 3.6%. Since the other two components of GDP, trade and government spending, are both either relatively flat and/or highly dependent on the impending crises I mentioned earlier, we are dependent on the private sector to fuel the recovery. And the private sector is still wallowing in the aftermath of its bubble induced, debt retrenchment.

This is, of course, not news, but today’s news is a vivid reminder of how much work is yet to be done. No amount of political sharp talk can mask the failure of economic policy over the past decade – or more depending on how meticulous you want to be in tracing back the causes of our problems.

There is no point in re-hashing the discussion: we suffer from a lack of demand, and the longer we fail to address that issue the longer our wallowing will continue.

Today’s durable goods order report was decidedly different from most expectations. August’s 13.2% decline was much steeper than anyone predicted. It is, however, a very distorted number. Durable goods orders are highly volatile because they include some very large items such as aircraft orders and defense spending on capital goods. For instance, aircraft orders fell a whopping 102% in August alone because airlines had bunched their orders up during the Paris Air Show producing a spike up in July of 51%. Stripping out the effects of those two categories leaves us with a very different impression: the other categories actually grew slightly, at an annualized rate of 1.1%,reversing the declines of 5.2% in July and 2.7% in June.

I think it is fair to expect a slight pause in business investment, as illustrated in durable goods orders, while companies assess the likely damage to demand resulting from the upcoming, post-election, negotiations over the Federal budget. Failure to re-work the current arrangement would send us over the proverbial fiscal ‘cliff’ and by most accounts produce an immediate recession. Congressional failure to reach an agreement over the budget is injecting a level of uncertainty that inhibits growth. As you know, my opinion is that we ought to be augmenting not diminishing demand, but that is not the prevalent view in Washington where austerity in some form appears to be the more likely outcome. We are paying a heavy price for the impasse in Washington, and every quarter that goes by without a sensible long term budget in place adds to the pain.

Finally a little good news: today’s report on weekly claims for unemployment assistance was a modest step in the right direction. At 359,000 it was 26,000 down on the prior week and managed to produce a slight 4,000 improvement in its four week moving average. So that’s the good news. Unfortunately that four week average is almost spot on where it has lingered all year, and is woefully above a rate consistent with a rapid recovery in employment. While supporters of Obama will no doubt crow that this is much better than we saw at the depths of crisis – true – and is better than the record of the Bush administration -also true – it is nothing to be proud of. We are generating jobs at about the same rate the population is growing. That is insufficient and speaks to rotten economic policy in the face of a human crisis that everyone in Washington pays lip service to, but substantially ignores.

Of course it would help if economists could agree on what a good policy would be, but that, I fear, is a pipe dream. But, come to think of it, most economic theory is a pipe dream anyway, so why should we expect economists to be of value in fixing an economy?

Of that, another time.

 

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Consumer Confidence Rises Sharply

Let’s not get excited, but this morning’s Conference Board report on consumer confidence is quite surprising. The index jumped from a revised 61.3 in August to 70.3 in September, beating expectations and, perhaps, altering the outlook for growth. This is the highest reading for seven months and suggests that the summer’s downswing is well past.

The detailed figures reveal a sharp and understandable split between what people think of the present and what they are expecting. The current conditions still draw a skeptical response – only half of respondents think much of circumstances – but even within that part of the report attitudes are brightening. In particular the feelings expressed about employment are lifting, albeit very slowly.

Questions about the future elicit a much different and much more optimistic response. Fully 80% of respondents expect the situation to improve over the next few months, especially in the labor market, and they back this rising optimism with expressed intentions to spend. For instance, the number of people saying they will buy a major appliance or a new car both rose during September, continuing a trend that set in around mid-summer. Were these intentions to become actual activity then the added consumption would boost GDP from its current rather tepid levels back towards a more acceptable trajectory with the potential knock-on effect of boosting employment.

Be forewarned though: there is only a weak link between these confidence readings and subsequent spending behavior, so we ought not to  declare the muddle over. The most important ramification of the lifting mood may be more in the political arena than in the economy. Rising optimism augurs well for Obama and his re-election chances. Quite what he will do in his second term is another question altogether. We can discuss that at another time. Meanwhile today’s news suggests that the long slow recovery continues and may be accelerating just a bit.

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Home Prices Keep Rising

A quick note:

US home prices, as measured by the Case-Shiller index, rose again in July – the latest month for which there are figures. The increase, an annualized rate of 1.6%, was sufficient to push the year-on-year gain to 1.2%, and was the fourth month in a row of increase. More good news was that the gain was nationwide. All twenty of the large metropolitan areas that comprise the index saw an increase. This too continued a trend: it was the third month in a row that gains had been that widespread.

It appears that many consumers now feel comfortable enough with their debt to income ratios, job security, and income prospects to to make what is obviously a very large commitment. Their re-entry into the market has boosted both new home and resale sales, reduced inventory overhang, and put a floor beneath the real estate slump. Prices now reflect the beginnings of recovery. The steady working through of foreclosures has also lifted prices: transactions taking place now are more likely to be voluntary sales and thus more reflective of sustainable market conditions.

A word of caution: prices are still about 30% below the bubble peak, and this recovery is both slow and susceptible to reversal if general economic conditions don’t continue to improve. Real estate can hardly be thought of as a strong contributor to the economy. It was an oversized contributor to what little employment growth we experienced during the Bush administration, and will be undersized as a result for a long while yet.

Nonetheless, we are lifting away from the floor. That we ought to be grateful for.

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We Are All Job Creators

One thing that really irks me, and that has become a major feature of this election, is the silly phrase ‘job creators’. It speaks to an ideological view of the economy unsupported by the facts.

We often hear right wing economists and politicians talking about the need to encourage investment and hence growth by reducing the ‘burden’ on entrepreneurs, businesses, and sundry others who apparently are the ‘engine’ of our growth. Thus the need for deregulation. Thus the need for lower taxes. Thus the need to prioritize growth over the environment, social safety, and other hinderances. The entire ability of an economy to generate jobs is connected, in this narrative, to the unfettering of the entrepreneurial spirit which is so sensitive and weak that it will wither at the first sight of constraint. Particularly constraint by the government.

This is the supply side story and they are sticking with it. Apparently we ought all be in the thrall of the job creators and count ourselves lucky that they pursue riches and fame despite the manifold roadblocks the government throws in their way.

Rubbish.

There is another narrative. One that makes more sense. We are all job creators. All of us. That is to say that every time we spend we facilitate business. Our demand for goods and services is what encourages and allows entrepreneurship. It is because we go out and buy what they have to offer that they make profits and employ people. When we stop buying and retrench in order to pay off debt, or when we stop simply because we have run out of cash because we are unemployed or because we are underpaid, no amount of entrepreneurial spirit or elan can make up the difference. Without demand, business stalls.

This ought to be simple to understand. But it obviously isn’t. The problem is that it conflicts with the right wing vision of heroic business fighting to survive amid competition. Right wingers fixate on all the details of market competition. They tell tales of rugged entrepreneurs struggling to make a fortune in the teeth of ferocious opposition. Those entrepreneurs that survive are then elevated in right wing lore to lofty status. They are, we are told, the engine that we all rely upon for our good fortune. Allow them to persevere and we will all be lifted too.

But most entrepreneurs fail. Miserably. Why? They misjudge not the competition, but the demand.

The existence of demand validates the entrepreneur’s vision. Steve Jobs looks like a visionary in retrospect. His series of novel products are a triumph of entrepreneurial vision. But he would have been nothing were his products not bought. He met demand. Demand did not meet him. There was prior existing demand that he was both savvy and bold enough to go after and profit from. His risk taking was sensible only when we think of it after that fact. He could not have possibly known, in any concrete definition of knowing, whether his risks would pay of. They were risks. Indeed in a more demanding explanation of economic reality, one where uncertainty is endemic, his risks weren’t even risks. They were outright guesses. Shrewd maybe, but guesses nonetheless. He mitigated the uncertainty in every way he could. He advertised. He limited his exposure. He researched. He dug out as much fact as he could so as to avoid going too far out on a limb. He employed experts to give him advice. He produced products that were within his range of personal expertise. In many ways he was the exact antithesis of the rugged entrepreneur so revered by right wingers. He was cautious to a fault. Until he plumbed the depth of demand. At which point he went fill bore.

He neither created a market nor created demand. He unlocked it. He intermediated. His activity expanded the actual economy further into its potential space. This is an act of creativity. It is an act of learning. It fits perfectly within a narrative of an economy as a constant learning activity. But it is a collective learning. There would have been no point in launching the iPhone in an era without electricity. It would have been inconceivable. Modern products and inventions make sense only in the context of a modern economy. That modern economy consist of us. All of us. With our current levels of education and current expectations, preferences, and other manifestations of accumulated knowledge and experience. That accumulation of knowledge and experience is a social act. It is entirely context dependent. It is shared.

This is not to belittle the individual creative act. Not at all. But it is to fit that creative act into its rightful, and well earned spot. Yes, creativity is essential. It is ceaseless creation that drives the economy to produce more wealth. But that creation only pays off, and is only rewarded, by the collective validation we call, rather vaguely, demand.

Thus, Steve Jobs and his ilk are not job creators. The people who buy products are.

We are all job creators.

 

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