True, fewer people today live in households with incomes between $30,000 and $100,000 (a reasonable definition of “middle class”) than in 1979. But the number of people in households that bring in more than $100,000 also rose from 12 percent to 24 percent. There was no increase in the percentage of people in households making less than $30,000. So the entire “decline” of the middle class came from people moving up the income ladder.

From Stephen Rose in the Washington Post via David Weinberger at the Foundry

Posted from WordPress for Android

The nation’s high unemployment rate is a result of a severe drop in demand for goods and services and is not a reflection of longer-term structural changes in the economy, a top adviser to President Barack Obama said Saturday.

Why is there a drop in demand for goods and services?  Because the government has [HYPERBOLE ALERT] confiscated all of our money and anyone in their right mind is being cautious about how they use what they have left.  Christina Romer, however, will use this drop in demand to increase government spending MORE of our money in order to “stimulate” the economy.  How has that worked for us so far?

“It reflects the fact that we are still feeling the effects of the collapse of demand caused by the crisis,” she said. “Indeed, at one point I had tentatively titled my talk, ‘It’s Aggregate Demand, Stupid,’ but my chief of staff suggested that I find something a tad more dignified.”

No, it isn’t the aggregate demand.  It isn’t even the aggregate supply (although that is something that could more easily be controlled than the demand).  It is the uncertainty caused by a lot of factors, not the least of which is how much will Obama’s new health care reform cost us and will I really be able to keep my insurance.

The Fed cannot actually lower interest rates any more, but Romer cited a study last year that said “economic conditions would lead it to cut its target for the federal funds rate by an additional 5 percentage points if it were able to do so.” She added: “That is, despite the very low level of interest rates and all the attention to the growth of the Federal Reserve’s balance sheet, current monetary policy is in fact unusually tight given the condition of the economy.”

I am no expert in monetary policy, but does the first sentence even make sense?  “The Fed cannot actually lower interest rates any more, but…they could be cut by an additional 5 percentage points.”  Huh?  To me, it sounds like, if I could make wishes come true, I’d wave my little magic wand and, POOF!, it would all be better.

via Obama adviser ties jobless rate to demand drop: Rutland Herald Online.

In a report due out this week, Vermont officials will conduct the first statewide tally of jobs “created or preserved” by the federal stimulus package. But the figures necessarily will fall well short of the 8,000 jobs projected by federal economists at the outset of the American Recovery and Reinvestment Act.

The final calculations won’t be ready until late this week, but Vermont “recovery czar” Tom Evslin says he’s certain the total won’t come close to what was predicted. That doesn’t necessarily mean that many jobs weren’t created or saved; there’s just no way to document the effect.

via Stimulus job tally: Don’t get hopes up: Rutland Herald Online.

Apparently, we’ve changed the language from “create and save” to “create and preserve”.  From the best I can tell from reading this article the change in phrase is coming from the federal government.  What is it that they hope to achieve?  Who are they hoping to fool by changing the words?

In other news, Vermont has a “recovery czar”.  Vermont has a “recovery czar”?  Anyway, he uses the old terminology of “created or saved”.  So which is it?

Either way, I’ve been pondering whether or not “saving” or “preserving” jobs is a worthy endeavor (assuming it is even possible to measure).  It probably depends on what you mean when you say jobs.  If you mean some one working (no matter what their task), then saving a job means keeping that person employed no matter what the financial considerations to the employer.  If you mean a specific task, then saving a job might mean hanging onto to a task that is obsolete and thereby inefficient for the employer.

So, if you go by definition number one, then it seems compassionate to try and “preserve” jobs.  You want people to be employed.  Is it possible to save a such a job?  Too much pizza this weekend is clouding my thinking, so I’ll have to give that answer some more thought.

If you go by definition number two, then it is counterproductive to “preserve” a job.  Employing someone in a role that is no longer needed is not productive and is therefore an unnecessary cost.  Saving jobs in this case is actually costing money that could be used in other, more productive, ways.  A classic definition of economics by Lionel Robbins: Economics is the study of the use of scarce resources which have alternative uses. In this case, the money being used by the government has an alternative use: being spent and/or saved by the taxpayer who sent it to the government in the first place.  Of course, the government could just print more money, ending the scarcity problem, but in the process that would distort the value of money and create inflation problems.

Whether you’re intent on saving people from unemployment or saving roles from extinction, the use of the taxpayer stimulus money is not going to have the intended outcome of stimulating the economy.  We’re living through the proof of that right now.

For anyone interested in a good analysis of the consequences of extending unemployment benefits would produce (bold emphasis mine)…

Counter-productivity sets in when the incentives of an insurance policy become unbalanced. Insurance policies alter the incentives individuals face and have the well-known perverse effect of nudging the very behavior that would lead to a payout of the insurance policy. That is, the problem of moral hazard. Economists have found unemployment insurance affects an individual’s incentive to find a job by changing the constraints and opportunity cost of finding a job.

Unemployment benefits reduce the incentive and the pressure to find a new job by making it less costly to remain without work. Consequently, workers with UI benefits look for new jobs less rigorously than do workers without them. The typical unemployed worker spends about 32 minutes a day looking for a new job.[1] Workers eligible for UI benefits spend about 20 minutes a day looking for work during their 15th week of unemployment. They look much harder when their benefits are about to end, spending more than 70 minutes a day job hunting in the 26th week of unemployment.[2] Since workers with unemployment benefits search less rigorously for work until their benefits are about to expire, it typically takes them longer to find new jobs. Labor economists estimate that extending the potential duration of unemployment benefits by 13 weeks increases the average amount of time workers on UI remain unemployed by two weeks.[3]

This has economic consequences. Workers do not create economic wealth during the additional weeks they remain unemployed. They save and consume less because UI replaces only a portion of their wages. Labor markets become less flexible because it takes more time for workers to transition from one industry or state to another. This hinders overall economic growth.

via The Economics of Extending Unemployment Benefits.

This is from the Heritage Foundation.

Job Loss Chart

Above is a chart (from The Business Insider) of the percentage of job losses during recessions starting from peak employment.  Here are some of my observations from the chart:

  • While other recessions have started off with a more rapid loss of jobs, the current recession line is practically a plummet without even a lateral change, or leveling off.  Even the ‘deepest’ recession (1948) did not take a straight path to its lowest level.
  • This recession has almost reached the same percentage of job loss as the ‘deepest’ recession of 1948.
  • The longest recession (2001 –  the colors are hard to distinguish) since WWII took 46-47 months to regain the lost jobs but the loss only dipped to a low of -2.0%.  This recession has already lasted 18 months and the job loss has gone to almost -5.0%.  So at roughly a third of the time of the longest recession, we are at over twice the job loss number.
  • The one bit of good news (call it hope) is that the ‘deepest’ recession took only 5 months to regain the lost jobs.  Let’s hope that some miraculous confluence of events will manifest itself through our political (eh hem) leaders so that we can experience a similar 5-month recovery of jobs.

The laughter you hear over the thought of our political leaders making meaningful changes to economic policies is nervous laughter.  The likelihood of those leaders stumbling upon an effective economic policy is next to none, but the need for them to find it (and find it soon) is great.

The 2010 elections are 15 months away.  That puts us only two thirds of the way through the longest recession.  There will still be time.

I received an email from Rep. Peter Welch (D, VT) in response to a call I made to his office to vote against the Waxman-Markey bill (HR 2454), also known as the Cap & Trade bill.  I appreciate the fact that he (via his staff, most likely) took the time to respond to my phone call.  If nothing else, it acknowledges the receipt of the call.
That being said, here is the letter (with my thoughts in blue):
June 29, 2009Dear Mr. Whitman,

Thank you for contacting me about the American Clean Energy and Security Act, H.R. 2454.  I appreciate hearing from you on this important issue.  (You’re welcome.)

As a member of the House Energy and Commerce Committee I am playing an active role in charting a new energy future for our country that will strengthen our economy (since when is it your job, or Congress’ job, to chart an energy future?), create new green jobs (how can you, a public official with no access to resources other than the tax revenue of American citizens, create green jobs let alone jobs at all?), and protect working Vermonters and Americans (I am glad that you are interested in protecting Vermonters and Americans, but I think fighting terrorists (al Queda, Hamas), rogue nations (North Korean, Iran) and criminals (Bernie Madoff) should be of higher concern than fighting carbon emissions).  I share your concern that Congress address climate change in a way that ensures that consumers and businesses are not unfairly burdened by measures to control carbon pollution.  (You assume that I want to address “climate change”.  Last I knew the climate has been changing for thousands of years, and I am not particularly interested in trying to assert human will on the climate.)

I voted for H.R. 2454 that sets the goal of cutting carbon emissions 80 percent by the year 2050.  (This strikes me as though we are tilting at windwills – literally as well as figuratively.  Humans exhale carbon dioxide.  Are we going to protect Americans by eliminating another countries population in order to cut on carbon emissions from humans?) Through H.R. 2454, the cost to consumers of transitioning to a prosperous, clean energy economy will be offset by assistance to local utility companies (assistance that comes from taxes), investment in energy efficiency (with money that comes from taxes), and by direct consumer assistance (with money that comes from taxes).  In addition, H.R. 2454 will reinvest American energy dollars currently exported overseas in American jobs and businesses (I am not fooled by the rhetoric that we lose jobs in America when jobs are created overseas – this is another tax).  A recent Congressional Budget Offices analysis of the legislation determined that the overall cost to households will be less than the cost of a postage stamp a day, which does not include the projected financial benefits from increased energy efficiency, national security and green job creation.  (This is a ridiculously impossible analysis. I haven’t had the time to investigate the 300 page amendment added to the bill at 3am the day of the vote, but all of the regulation that it adds will cost consumers more money than 44 cents a day.  Energy efficiency is an excellent goal, but it isn’t efficient to force it on the market when the technology and the demand is not yet there.  Of course, the definition of economics includes efficiency and those who are more efficient succeed.  That we haven’t acheived “energy efficiency” is not a mystery, unless you are talking about the controversial claims of the human impact on “climate change”.  In which case, many questions have been satisfactorily answered.  You also assert that this is a national security matter and I fail to follow the logic.   I don’t recall North Korea having any strategic value to the energy sector of our economy.  They want to “wipe out” the U.S.  You also touch on the green jobs thing again and once more I fail to see how the US Government can create jobs without other peoples money.)

Again, I greatly appreciate hearing the ideas and concerns from Vermonters as Congress continues to debate the most effective approach to address this challenge.  Please continue to be in touch and I hope to see you in Vermont soon.  (I will make the effort.  And I will be working to find your replacement in the meantime.)

Member of Congress

Sincerely,

PETER WELCH

So, the new title I’m suggesting for this bill would be “Capped, now Trade”.  Voting out every member of congress who voted for this bill would be an excellent place to start cutting the carbon emissions coming from Washington DC.

So far, Obama’s job approval rating still is high, at 67 percent, and he is scoring strong marks for his handling of the economy.  (from Obama throws $75 billion lifeline to homeowners)

What!?

Okay, I get that the President’s approval ratings are high.  The mainstream media has not allowed the public an opportunity to look past the veneer that is Obama’s Hope-and-Change image to see the real politics-as-usual core that lies behind.  What I don’t get is the strong marks for his handling of the economy.

He’s been in office barely a month and he’s upped the ante of taxpayer liability by increasing government spending to almost $790 BILLION!  In one month he has added $790 billion to the outflow portion of the nation’s balance sheet.  That means that he’s already spent $26 billion a day since being in office (and that figure is probably in his favor considering yesterday’s pledge of $75 billion to “troubled” home owners)!  Isn’t that figure larger than the “Bush is spending $x billion a day with his follies in Iraq!” (I thought that figure was around 1 or 2 billion, but I can’t keep track of numbers that are that small)?

So, when we cut taxes that applies to everyone then that is a bad thing (Bush tax cuts on capital gains).  But when we hand out money to 9 million Americans while the other 300+ million have to sit by and watch, then that is a good thing (Obama promise to 9-10 million American home owners).  Huh?

When will the man behind the curtain be revealed to the poppy-headed masses?

MW

For anyone who is interested in understanding economics (and why these bailouts are bad), then I would highly recommend Thomas Sowell’s: Basic Economics: A Citizen’s Guide to the Economy.  The topic may not be scintillating, but it is well written and exceptionally informative about matters relating to economics.  I would try and convince you that it is not political, but chances are if you are a liberal, then you don’t believe in the virtue of a free-market approach to managing the economy and you will therefore think that this book is politically charged.  If you are a liberal, then you believe that the government can and should do more to control the economy.  Of course, Sowell points out very clearly that every time a government has done that, the outcomes have been far from what was intended.  I hope to do a more thorough layperson’s review of Sowell’s book on my blog.