Daily Archives: November 10, 2011
Today’s economic statistical releases:
The trade deficit improved last month, falling to -$43.1 billion. Sadly, the improvement comes largely from gold purchases, which isn’t a sign of confidence or hope. It’s a sign of a panicked flight to safety, based on a growing financial terror about the Euro Zone. Yesterday, Barclay’s came out and said (PDF) what everyone has been fearing: Italy is going to default on its debt, and no amount of economic reform will stop it. Bye-bye, Euro. Also yesterday, as I predicted, the French and Germans are now discussing a "core" Euro zone, which would consist of…France and Germany. If Italy goes down, there’s simply no way to wall off the resulting bank failures, credit tightening, and economic contraction that will result from the evaporation of those assets. Presumably, Spain, Portugal, and Ireland will auger in shortly after Italy does, as their debt becomes impossible to service in the resulting Italian contraction. Yet, somehow, the failures of this model of political-economic policy seem lost on American policymakers.
Initial jobless claims continue to edge down, coming in at 390,000 this week. Last week’s claims were revised upwards by 3,000 to 400,000.
Export prices fell -2.1% last month, while import prices dropped -0.6%. On a year-over-year basis, export prices are up 6.3%, and import prices are up 11%.
The Bloomberg Consumer Comfort Index edged up slightly last week, though it remains near historic lows at 51.6.
Megan McArdle hits some points that pretty much doom Europe and, if it is not already too late, the US. They are contradictions and conditions that make recovery from all this fiscal irresponsibility almost impossible. It involves social welfare, democracies and why that combination simply can’t find the necessary ability heal itself.
When I was a young and naive economics writer, I used to write about developing countries a fair amount. Time and again they would make these bizarre and pointless moves, like suddenly and for no apparent reason defaulting on a bunch of debt. They would engage in obviously, stupidly unsustainable fiscal practices that caused recurring crises. They would divert critical investment funds into social spending which was going to become unsustainable when underinvestment reduced government revenue. And the other journalists and I would cluck our tongues and say "Why can’t they do the right thing when it’s so . . . bleeding . . . obvious?"
Then we had our own financial crisis and it became suddenly, vividly clear: democratic governments cannot do even obvious right things if the public will not tolerate it. Even dictators have interest groups whose support they must buy.
This has come home to me forcefully several times over the last few years, but never more than now. The leaders of the eurozone have a dual mandate to keep the euro intact, and to not do the things which could keep the euro intact. They cannot fiscally integrate to the extent necessary because, as I wrote for the Daily the other day, the Greeks do not want to act like Germans, and the Germans do not want to share their credit rating with anyone who won’t.
It is a bit like the Ohio vote on unions. In a heavily union state, those who benefit the most vote to continue the situation where they benefit. In democracies like Europe where people’s property are up for re-distribution, those who benefit from such redistribution are always going to vote to continue the status quo. And, of course, politicians who benefit from the vote of that constituency are going to try to find every way they can to accommodate that constituency.
So even when it is “so … bleeding … obvious”, to most economic observers as to what action must be taken, nothing happens or, in some cases, it gets worse.
At some point, though, the bill comes due. We’ve talked about the laws of economics and how unyielding they are. Oh you can screw around and play some games that allow you to defy them for a while, but like gravity, it all will finally come tumbling down.
We’re there. We’re at the falling down stage if things don’t change drastically.
But there is seemingly no stomach for drastic change.
And that leaves us to try to figure out what the world will look like after the collapse of the Western social welfare system is complete. Because it is seeming like its not a matter of “if”, but “when”.
Ohio voters voted not to back the reforms Republican Governor John Kasich wanted to implement to break the power of public sector unions. Michael Barone comments:
The biggest result was Ohio Governor John Kasich’s defeat on Issue 2. Voters cast 61% of their votes (as I write) to repeal Kasich’s law, which had been backed by Republican majorities in the legislature (with some defections). Kasich’s effort is part of a struggle to rein in public employee unions, which use taxpayers’ money (in the form of union dues) to elect pliable politicians who then confer benefits on their members —especially generous health care and pensions—which then result in economy-killing tax rates. It’s a kind of economic death spiral for states and localities where public employee unions are a major political force.
He’s right. Barone lays out the basic problem with public sector unions – the fact that they have become such a force in politics that they hire their own “bosses”. And those bosses are happy to “negotiate” away tax dollars for continued political support. Thus the “economic death spiral” Barone talks about. As long as the taxpayer is paying, two sides of this triangle are quite happy to continue with business as usual.
Democrats are touting this as a huge win. And it is … for the party. It’s certainly not a win for the state which will now have to live with this continued lopsided arrangement that will continue to cost taxpayers dearly.
The irony, of course, is that on the same ballot, Ohio voters bought into the Republican idea that the state should refuse to comply with the new National Health Care law (aka ObamaCare).
There is some consolation here. The same Ohio voters—and the turnout seems to have been just about as high as in November 2010—who voted 61% against Kasich’s public employee union restrictions also voted 66% for Issue 3, which purported to shield Ohioans from any mandate to buy health insurance. This was a clear repudiation of Obamacare, and about half the folks that the unions turned out voted against Obamacare.
OK, maybe it really isn’t an irony. Remember ObamaCare doesn’t like “Cadillac” health care plans and the unions have certainly ensured they have that.
Instead, what it points to is how powerful unions are in Ohio and how well they can mobilize the vote. Unions spent big and they got results. In reality, both Issue 2 and Issue 3 represent the union vote. One went against the Republican governor. The other, however, went against the Democratic President and his party.
And which one is getting all the press?