unemployment

/ / , , , , /

Obama’s Meaningless Speech

It has been well received. It had lots of nice things in it. It might have helped our unemployment problem.

That’s it.

It was a political speech designed to begin Obama’s re-election campaign. We have a year of this pointless stuff to come. Such is the total collapse of our political process that everything said, all the content of the pretty speeches, and all the serious comment in the press, is an adornment of will be an interminable election cycle.

It has very little to do with jobs.

Why?

Precisely because it was an election speech.

That means the Republicans cannot vote for it. Nor can they ignore it. What they can do is to debate it, eviscerate it, and attempt to debase it sufficiently that Obama cannot claim the political win he so desperately needs.

All of which means that, by the time something actually gets passed into law, it will be watered down and far different from whatever we heard yesterday. And it will do precious little to alleviate the plight of our fellow citizens who are unemployed.

This makes it almost an worthless exercise for us to examine the proposal too much. Nice though it appears. The important message for anyone interested in economic policy and the economy in general is that politics now is more important than solving economic problems. We can expect nothing of substance to be decided as the bitter opposition to Obama digs in even more deeply.

His speech can be called a political win. But from our point of view it is meaningless.

/ / , , , , , , /

Post Labor Day Pieces

Labor Day is gone again. Another year into our economic malaise and little to show for it. The feeling I sense most is one of frustration, mixed with a growing skepticism that anyone knows what to do to get the country rolling again. The most popular narrative in the media is that we need to tackle our debt crisis, and that this needs to be balanced with some short term tinkering in order to spur job creation.

Tinkering?

Phooey.

We need surgery.

But we won’t get it. Another part of the common narrative explains why: the thought is that Keynesian policy failed us – exhibit A being the rotten outcome from the 2009 stimulus – and that any further such effort is throwing good money after bad. Besides, the same thought goes, we are up to our eyeballs in debt because of all that government intervention, and have no more room to add to debt levels without tipping the economy into a state of bankruptcy.

Add in all the usual homilies about government borrowing sucking all the credit from the market so that the private sector cannot borrow, invest, and thus propel us all forward, and the sanctimonious commentators sit back as if they have discovered some deep truth. Some inescapable truth about economics that only the foolhardy try to avoid.

That truth being that we ought to let the market – whatever that is – correct itself. Which it can only do once the government is firmly constrained, reduced, and otherwise neutralized.

This narrative is, of course, straight from the right wing playbook supported by right wing economic theories. It endures and manages to influence policy makers despite the total lack of credible evidence to suggest that it is correct.

For instance I find it odd that those who argue we should let the market solve our problems seem willing to ignore market based evidence. Were they to tune in to actual market signals they would find it emitting a primal scream. Interest rates are at near all-time lows. Cash is flooding into the US. Far from saying pay down debt, the market is urging, vociferously, that we borrow more. In other words we have a once in a lifetime opportunity to borrow vast amounts of money and invest it in our future. With rates at 2% practically any sensible long term investment would turn a neat profit for society. We could rebuild our infrastructure, refurbish our electrical grid, rebuild our bridges, invest in non-carbon energy sources to cut our dependency on oil, and we could even, and I realize this is a stretch, rebuild our rotting inner city schools.

This would be a great gift to our children. Yes it would burden them with debt repayment costs. But those costs would be much smaller than the ones they would incur for the same amount of activity. We would, in effect, being giving them a cut-priced, but refurbished, infrastructure. Anyone flying into or out of New York City confronts the antiquated and failing physical assets we currently make do with. At 2%, all that could be improved. Or at least some of it.

But no.

Notwithstanding the urging of the free market and its message to borrow and invest, we are being led by policy makers intent on paying back debt. So lacking in imagination, energy, and substance are they that they ignore the very market they laud. So ideologically hidebound are they that they fail to see the opportunity we have. They don’t want to see it. They don’t want to muddy their ideological purity by acknowledging that the market, that paragon of economically efficient allocation of resources is begging, just begging, to allocate resources to US government debt.

This blind and willful disregard for evidence will cost our children dearly.

Not only will they inherit a diminished economy, but they will still be faced with having to refurbish our shabby and shamefully neglected infrastructure. An infrastructure that will represent a constraint on the growth they can squeeze from the economy.

Meanwhile in another supreme example of ineptitude, Standard and Poors continues to give a higher rating – AAA – to mortgage backed securities that include elements of sub-prime debt, than it does to US government debt. The absurdity of this is indescribable. The enormity of the stupidity boggles the mind. It is, naturally, easily explained. The mortgage debt issuers pay to make sure their debt retains that coveted AAA rating. The US government clearly doesn’t. Never has there been a more clear and distasteful example of corruption on Wall Street. Yet it continues. Mercifully the credit markets seem to ignore S&P – as current interest rates suggest. Which begs the question: how does S&P continue in business? It is clearly irrelevant, corrupt, and incompetent. I can only assume inertia is the key factor keeping them afloat. All those money managers who rely on S&P ratings are too lazy or too ignorant to change their ways. Perhaps they are too stupid to undertake their own credit analysis. Or, perhaps, they are just as corrupt, and don’t want to be exposed as being part of the same game.

Oh.

And one last thing this post-Labor Day week.

Today’s report on new claims for unemployment assistance showed an increase. Small, admittedly, but an increase nonetheless. Claims rose from 409,000 to 411,000. It is not worth my while to tell you what I think of this. One word will suffice: awful. What we need, clearly, is a major speech outlining a series of bold, but still small-enough-to-get-voted-through steps to attack this problem that blights our great nation. We need more political grandstanding. More rhetoric. More inspiring words. More faux emotional moments when the camera can pick out an unemployed worker beaming with pride at the imminent action promised by those words.

More nothing.

As today’s numbers clearly indicate, the recovery is in full swing and our labor force should be grateful for the stirling leadership from both the White House and Congress. I tip my hat to the policy makers. It takes courage, inventiveness, and a willingness to work together to produce such results this far into a recovery.

Courage to look the unemployed in the face, and blame them for their misfortune.

Inventiveness to avoid even the simple things that could be done to help the unemployed.

And a great willingness to work together to corrupt and stall our political process sufficiently that the purpose of government becomes simply to be re-elected rather than to govern.

With leadership attributes like these we can all rest assured that my report next Labor day will mirror, almost exactly, this one.

Only we will then be closer to an election that will resolve, yet again, absolutely nothing.

Labor Day? I think not.

/ / , , , , , /

Confidence Sucks

Having survived an earthquake and a hurricane within a few days of each other I have a feeling that the economy cannot throw up much to upset me. Neither of those events amounted to a great deal here in New York City: the enormous energy spent by our various bureaucracies and breathless media in the run up to the hurricane dwarfed the rather meager effort of the storm itself which tricked us all and devastated inland areas rather than the more glittery targets here. Still all those boarded up storefronts and taped up windows spoke volumes about the risk aversion of New Yorkers when it comes to their personal belongings. I just wish that those of them who populate the trading desks of Wall Street banks had the same attitude towards risk when it comes to gambling with other people’s money. But that seems like a forlorn hope on my part.

Speaking of forlorn:

Today’s report on consumer confidence is all we need to know about the trajectory of the economy. Confidence sucks.

Dragged down by deteriorating views on jobs, incomes, and general economic conditions the Conference Board’s measure of consumer confidence dropped like a proverbial stone, falling from 59.2 in July to 44.5 in August. To put this in context, in a strong economy the index often reaches the 90+ level, and the drop in August one was of the largest ever recorded.

Add this rotten report to the ongoing hesitancy of business to spend its pile of cash, which is still accumulating and sitting idle on balance sheets around the country, and we see immediately that the threat to the economy is in our collective belief that things have not yet turned a corner.

Despite the mild positive tone that consumers gave the Conference Board about their intentions to buy cars or large durable goods items – both seem set for a slight uptick – the overall message was one of unmitigated gloom. It may well be that, as the Economist magazine rightly points out, the normal causes of recession such as inventory movements, a turn in real estate, a sudden burst of unemployment, or a tightening by the Fed are all absent. Indeed for one reason or another they are all remarkably quiescent. Yet consumers are extraordinarily glum. We are stuck in an economy where the lack of confidence creates the very stagnation that drains away confidence even more. Our risk aversion is way beyond that commensurate with actual economic conditions. Things are not quite as bad as they appear.

One example of what I mean by this is the outlook for inflation. Consumers, according to the Conference Board are expecting an inflation rate of around 5.8% over the next twelve months. But the actual number will be more in the 2.0% range. Given such a high expected number it would be rational for consumers to be spending money to defeat the run up in prices. But they aren’t. They are saving, even though the returns they are getting on those savings are ludicrously below their estimate of inflation. In other words consumers are completely willing to experience a loss on their savings because of their perception of the risks that roam the future economic landscape.

Do consumers know something that eludes the analysts?

It doesn’t matter.

Economic behavior is far from rational – despite the theorizing of mainstream economists whose entire constructs are built on the illusion of rationality. Indeed rational expectations are more quicksand than bedrock for anyone trying to interpret consumer activity. Be that as it may, we are clearly becalmed in a Sargasso like sea. It will take a shot in the arm, and a great deal of effort choose your own cliche at this point – to get us moving with any optimism.

Which is unfortunate given the political theater of our electoral process.

One reason why confidence may have been rocked last month was the depressing spectacle of our elite discussing the debt ceiling in apocalyptic terms when, (a) the debt ceiling was irrelevant and unimportant, and (b) what really matters is the outlook for jobs and incomes, neither of which have received serious attention for months. When a nation is this badly led, and when an elite is this divorced from reality, it is almost certain that voters will react with alarm and nervousness.

So we are left trying to find bright spots within the despair.

Here’s a perverse one:

All that storm damage will have to be fixed. That implies a spurt in construction. This will amount to a mini stimulus in those states hit the hardest. Whether it will offset the loss of business from storm damage I cannot tell: but at least it’s a nugget we can cling on to as our elite meanders about in the desert trying to avoid being grown up about the real issues.

When confidence sucks this much it’s these little things that can brighten our days. One thing’s for sure: Washington won’t.

/ / , , , , , , , , , /

Bernanke: Mr Long Run

Relax. In the long run it will all be OK. Between here and there … well now, that’s an interesting question, and one that we all ought to ponder, be sensible about, and generally discuss. The one thing we now know is that the Fed is not seriously involved in offering a solution to the near term bumps it sees ahead.

That’s about it. Bernanke’s speech this morning in the annual Jackson Hole shindig was something of a damp squib. He carefully avoided saying anything controversial, and he absolutely avoided suggesting that the Fed was going to engage in policies designed to assist us through the choppy waters we find ourselves in.

In short: the Fed is on the sidelines.

Let’s think about this for a moment.

With fiscal policy sidelined by the emergence of a veto exercised by our extreme right wing, and with austerity measures about to become a drag on growth, it is a little disheartening to hear that the other wing of our policy elite has also decided to absent itself from the fight.

We are on our own.

Having said that I was not a big fan of the Fed setting up a new QE program. Monetary policy at this point is pretty much useless, and while the stock market loved the idea – why not? all that cash would probably float stock prices up anyway – not many others saw any value in it. The entire point of a further easing would have been to nudge long term interest rates lower in order to stimulate borrowing, but rates are already very low and having little effect in the face of continued debt aversion amongst households and vast war chests of cash sitting around at our large corporations. In view of these factors monetary policy has little chance of success. Let me correct that: it has zero chance of success. So Bernanke is right to sit this one out.

This is a moment for fiscal policy, which, as I said above, is ruled out on ideological grounds. Which is absurd, but there it is.

As if to put all this in context we were treated, this morning, to the monthly update in the GDP numbers. There was no surprise. Second quarter GDP was anemic at an annualized 1.0%. Add this to the first quarter’s even worse 0.4% and the first half of this year scarcely registered growth at all. Yet Bernanke spoke of the economy being now nine quarters into a recovery. Technically correct. Substantively missing the point.

For those of you who read my forecasts will recall that I was always less upbeat than most others because of the drag I see – and still see – created by the need for households to retrench. We have made some headway towards getting the average household balance sheet repaired, but there is still some way to go. Not as far, though, as I feel it appears. The biggest current problem is no longer the repair job itself, but the fear of another round of erosion. In particular, the combined weakness in wages and the labor market create an atmosphere within which even a stable balance sheet inspires little confidence. People are still shell shocked at the decline in home values, and weak wages give them no margin for error. Consumption is less a priority than building up the ramparts to withstand another bank created shock.

So we have been lingering in a kind of no-man’s land between decline and growth. In a word: stagnation has set in. And there is no obvious motor available to power us out and back into a self-sustaining growth pattern.

Given this, I expect GDP growth to get back into the 2.0% – 2.5% range it had wallowed around in for a few quarters before the Japanese disaster and its consequent supply side shock set us back earlier this year.

To this extent I agree with Bernanke.

Where I differ is that I see nothing beyond that. I expect GDP to stick at around that pace for a while longer. The Congressional Budget Office released a new forecast this week with a projection that we would get back to our historic growth rate of between 3.0% – 3.5% by 2015. Quite what they think will give us sufficient kick to get there I don’t know. They didn’t explain, and their forecast seems to be built more on hope than a coherent view of how an economy beset by debt restructuring an de-leveraging behaves.

There’s a lot of that going around: far too many of the comments I read in the media compare this recovery with a “normal” one after a “normal” recession. This is as if the recession was in the slightest bit “normal”. It wan’t. So we should not expect the recovery to be either. And, thus far it hasn’t been. Surely this should have sunk in by now.

Meanwhile our underutilization of resources – both labor and capital – is extraordinary. We are leaving vast piles of wealth on the table never to be recaptured. One estimate is that we will lose, permanently, about $5 trillion by the time we get back on our feet. That’s a wicked waste. One that is not necessary. And one that makes the cost of a stimulus package designed to limit the damage comparatively cheap. Why our leadership doesn’t see things through that prism I cannot explain, other through recourse to a toxic combination of lack of fortitude and ideologically driven obstinacy.

Given that policy blockage I find Bernanke’s speech depressing. He spent a few words gently chiding Washington for its childish and destructive debt ceiling spat. But he spent more words on describing the halcyon days ahead after we make our way through the short term problems. He expects us, in the long run, to have experienced no permanent damage from the crisis. All will, apparently, be well.

In the long run.

But, as someone, whose name I will not utter for fear of being cast as someone who is not serious, once said: in the long run we are all dead.

It’s the short term we have to worry about. And on that Bernanke was entirely mum.

Oh well: carry on as best you can. Our policy elite will follow along behind us all. Way, way, behind us all.

As I said: we are on our own.

Addendum:

Maybe it’s just me, but I think Bernanke should focus a little more – no a lot more – on unemployment. So concerned is he not to break with the hallowed ranks of central bankers, that he scarcely mentioned jobs at all in his speech. The first reference was half way down Page 6, after he had gone through avery dull and needless reprise of the crisis. Hey: Ben, we all know what happened. What we want to know is what you are going to do about it.

What’s worse is that when he did finally warm to the task of talking about the problem of unemployment, he promptly punted the responsibility of finding a fix to Congress, knowing full well the probability of such a fix emerging from that election fevered swamp is near zero.

And having carefully avoided taking a stand, and having run on about the virtues of price stability for a page or so, he dared to end with the platitude that, and I quote:

“The Federal Reserve will certainly do all that it can to help restorehigh rates of growth and employment in a context of price stability”

Given what went before these parting words, he clearly doesn’t mean them. Indeed, I careful listener would conclude just the opposite: the Fed is doing everything it can to avoid getting involved. Just like Congress. Just like the White House.

Oh well.

/ / , , , , , , , , , , /

Bits and Pieces From the Front Line

Historians will surely love to reflect on these days. Each seems to bring some violent twist. Each adds to the amounting confusion. Each makes the story that much more difficult to tell.

Today we learned that last week’s apparent uptick in the labor market was an illusion. At least until next week. New claims for unemployment assistance rose once more above the 400,000 level – to 408,000. Last week they had managed to slide slightly below, although only by a hair to 399,000. Somewhere along the way we have altered our view of what a “good” new claims number is. At the beginning of this crisis I was saying that we needed to get down to the very low 300,000 range. Below 325,000 at any rate. That level would be more consistent with healthy turnover and sufficient job creation that we were not adding to our longer term problem. We haven’t been that low for what seems like an age now, and so we have steadily changed and adopted 400,000 as being the watershed figure. The media and the stock market now greet a number below 400,000 as a sign of better times. It is not. It is terrible for an economy this far along from the last peak of employment.

We should not recalibrate. We should demand action

But our generals are now engaged in trench warfare. Their have fallen to a lowest common denominator of incompetence. Only now – how many months into the disaster – does Obama get on the road and start to talk up various jobs programs. Who knew we had a jobs problem? No one paying attention to Washington and the issues being addressed there.

Meanwhile the troops – those of us outside of the magic circle – are reporting ever lower levels of confidence. Both consumer confidence and now business confidence are declining at alarming rates. This plunging confidence has two origins. One is that the economy is self-evidently not improving. Jobs are hard to come by, wages are stalled and actually falling in inflation adjusted terms, home prices are stuck deep in depression, banks are refusing to lend, and prices are lurching about, although there the trend is in the right direction. The second is the utter collapse of our political system. It has failed us totally. People are not so divorced from current events that they cannot see the insanity that is Congress. Never have we been so poorly led. And now the political class seems content to punt problem solving into the election cycle. As if that will make decision making easier.

In that regard I have to point out the Republican Rick Perry’s extraordinary activity. Never has a candidate entered the ring in so blustering a fashion. His statement that were the Fed to take action to pump up money supply in order to lift the economy such action should be considered treasonous is inexplicably stupid. Apparently the Republicans now think that any action between now and the election – about 14 months hence – is an act of political interference. It is a biased act. It is therefore undemocratic, and – in Perry speak – treasonous. This is beyond bizarre. No wonder the Wall Street Journal is floundering about trying to encourage more candidates to enter the field. The current batch is dangerous.

Another point on Perry: he is making a big deal of his pro-business one market credentials. This, he says, accounts for the supposed resilience of the Texas job market during the recession. Well, not so much. According to recent research what job growth there was in Texas over the past three years comes from an expansion of government, not private sector, employment. The private sector in Texas shrank. But that shrinkage was offset by a large number of new government jobs. So the Texas story is one of Keynesian success. Nice. And, in any case, we should all note that Texas has a rapidly growing population – it needs to add jobs at a faster furiously in order to keep up with population growth. It didn’t. It’s employment record falls short of Massachusetts and New York amongst others. Perry’s record is dismal.

My real problem with this is that we need Obama to be challenged and attacked on his record. Which is grim to say the least. The last thing we need is a Republican party so far to the right that it scares the electorate into unthinking support of Obama, who, frankly, deserves to lose.

Meanwhile we have to suffer through nonsense such as Warren Buffet asking to be taxed more highly. While the gesture is worthy, I must note that his much discussed article in the New York Times failed to mention that his solutions would not actually raise his tax rate by much. Perhaps we need to remedy that. At the every least we need to abolish the specious notion that income from capital and income from labor should be taxed at different rates. As the very wise English judge once said: “income tax is a tax on income”, we need to tax all income, whatever its source, at the same rate. And that includes inheritances, since an inheritance is a form of income to the generation receiving it.

Another thought: the rise in risk within the global economy has been associated with a decline in rates on US government bonds. I am still waiting for the deficit hawks to concede that inflation is not about to surge and thus undermine bond rates. This wait, I think may take a while. Instead we have to suffer listening to Plosser, a Fed governor, and one of the dissenting three who opposed the recent announcement that the Fed would keep rates low at least through 2013, repeat his argument – wrong policy at the wrong time – at every opportunity. People like Plosser are the reason we have so incoherent a leadership. They are pulling against the rest of us.

At any rate with rates this low we should be borrowing every dollar we can. And then investing it in capital projects that improve our long term competitive position. The problem with this is that public accounting fails miserably to distinguish between long term and short term spending. There is no national accounting capital account. So debt borrowed to build a productivity enhancing asset – something that adds to national wealth in the future, and which thus generates revenues to pay off the debt, is treated the same as debt used to plug the gap in current consumption. This is something we need to fix. It makes enormous sense to borrow long term money for infrastructure and education – two things that will add to the economy’s future wealth creating ability and thus help pay for the debt.

And before you MMT people write to tell me we should just print money to pay for the things we want, let me argue that, while in current circumstances mired as we are in a liquidity trap, printing money is a viable alternative, I see it as a problem down the road when, and if, we have emerged from that trap. You cannot conjure real goods and services from mid air no matter how much money you print. So there is a limit on the efficacy of MMT. Beyond that point the deficit hawks argument that a surge in money could lead to a surge in inflation comes back into play. Plosser would be right. His error is that he is making that argument, falsely, while we are stuck in a deep hole. It’s all about inflation expectations and the way they are formed: an unfettered printing press is a very different animal than a bond market with the latter’s implication of repayment and thus constraint.

The housing market is going nowhere. People forget that it was real estate construction, fueled by the bubble, that made the employment record of the last ten years look vaguely acceptable. Take it away and we have had a lost decade for jobs. And there is absolutely no sign that real estate is coming back. Sales of existing homes dropped 3.5% in July, back down to an annual rate of 4.67 million homes. To put that in context the peak rate back in 2005 was 7.08 million. One problem that has now added to the gloom is the number of sales contracts that fall through. In July 16% of all contracted sales failed to materialize. The reason for this historically high level of failure seems to be the inability of buyers to secure financing coupled with home valuations being well below the agreed contract price. This implies that people are willing to buy homes at prices that the banks think are too high. Plus there is no sign that the downward pressure on prices coming from distressed sales is abating: foreclosed and short sales comprised about 30% of the total number of sales, unchanged from June.

Lastly: the ineptitude of the economics profession continues to sadden me. Whenever someone advocates we should adopt Texas style lower than average wages in order to boost employment nationally I cringe. It isn’t possible for everyone to be lower than everyone else. By definition. The existence of lower wage states implies the existence of higher wage states. Duh. But we still see such suggestions being made in the Op-Ed pages of well known newspapers. And these folks have tenure. Some at very respected schools. Maybe we should give up that respect.

Or is that too radical?

Just add it to the list of reasons to have no confidence in our elite to solve our problems.

We are truly on our own.

«< 11 12 13 14 15 >»