Free Markets, Free People

Daily Archives: June 14, 2011


The “debate”

Consider this an open thread – talk about the debate last night between GOP candidates or whatever.  I’ve got to hit the road.

Conventional wisdom seems to be forming that Romney and Bachman (who announced her candidacy for President at the debate, thereby stealing a lot of the air in the room) were the winners.   Slate’s Joan Walsh, of course, think “American’s lose” regardless of which GOPer won.

I have to wonder where Walsh has been hiding these past 3 years if they think any of those on the stage last night could do a worse job than the present administration.

There’s also the media angle – CNN conducted it, and many have complained that John King spent way too much time on social wedge issues that are the least of our problems now rather than dealing with the economy and foreign policy, etc.

Finally, does anyone really care right now about such debates?   And isn’t it a debate in name only.  It’s a freakin’ Q & A session with the moderator doing the questioning.  I’d actually love to see a debate instead of some news anchor deciding to ask what’s apparently important to him.

~McQ

Twitter: @McQandO


US in worse shape than Greece

I’m not sure how many times we or our politicians have to hear this, but to this point, it hasn’t made the impression it should:

Much of the public focus is on the nation’s public debt, which is $14.3 trillion. But that doesn’t include money guaranteed for Medicare, Medicaid and Social Security, which comes to close to $50 trillion, according to government figures.

The government also is on the hook for other debts such as the programs related to the bailout of the financial system following the crisis of 2008 and 2009, government figures show.

Taken together, Gross puts the total at "nearly $100 trillion," that while perhaps a bit on the high side, places the country in a highly unenviable fiscal position that he said won’t find a solution overnight.

Bill Gross runs Pimco, a based in Newport Beach, Calif., manages more than $1.2 trillion in assets and runs the largest bond fund in the world.  Gross went on to say:

"To think that we can reduce that within the space of a year or two is not a realistic assumption," Gross said in a live interview. "That’s much more than Greece, that’s much more than almost any other developed country. We’ve got a problem and we have to get after it quickly."

[…]

"We’ve always wondered who will buy Treasuries" after the Federal Reserve purchases the last of its $600 billion to end the second leg of its quantitative easing program later this month, Gross said. "It’s certainly not Pimco and it’s probably not the bond funds of the world."

Now whether you realize it or not, that’s a good share of the bond market saying, "yeah, you know, not interested". That’s scary. And with China recently unloading some of its US debt notes, it’s not a happy picture for the US, fiscally. As Gross points out, in overall financial condition, we’re worse off than the basket case of Europe – Greece.

We have been getting these warning for literally decades.  We’ve done absolutely nothing substantial to mitigate them.  In fact, we added more to the pile (Medicare D and ObamaCare).   We’re going to crash.   It is time for a huge reality check, gut check or whatever you want to call it.  But like the shopping addicted, we have got to cut up the credit cards, cut spending to the bone, get government out of areas it has no business and take as much power of the purse away from the Fed as we can.  

This is beyond absurd.  And the time to address it is now (if it’s not already too late).

~McQ

Twitter: @McQandO


So why aren’t businesses hiring?

For a number of reasons actually.  Some numbers tell the story:

Two years into the recovery, hiring is still painfully slow. The economy is producing as much as it was before the downturn, but with seven million fewer jobs. Since the recovery began, businesses’ spending on employees has grown 2 percent as equipment and software spending has swelled 26 percent, according to the Commerce Department. A capital rebound that sharp and a labor rebound that slow have been recorded only once before — after the 1982 recession.

Demand has increased enough that business is producing at least as much as it was before the recession, according to the NYT, but businesses aren’t hiring.  Why?

Well, in lean times, headcount is the first casualty.  Layoffs are the rule.  That’s the fastest way to reduce the bottom line and either cut the losses being suffered to a manageable level or eek out a profit.

But, you say, once the recession is over, shouldn’t they rehire?   Well, like all markets, not if the cost of the commodity is too high (labor) and an acceptable alternative is available (equipment).  In this case that appears to be software in many cases.  

So – business cuts back during bad times, finds it can either get along without the extra headcount or finds a technological alternative (equipment) and when a level of prosperity returns, doesn’t hire (although I’m not sure I’d agree a proper level of prosperity has returned at this point, but I think it is clear that much more employment was expected by now, which is why we see the word “unexpected” appended to every down employment report).

Why is this happening?  Well in addition to the above, there’s an added problem that is often ignored or not mentioned.  Government tax policies.  In the case of equipment buying, the government has incentivized such purchases to the detriment of another – namely employment (labor).

With equipment prices dropping, and tax incentives to subsidize capital investments, these trends seem likely to continue.

“Firms are just responding to incentives,” said Dean Maki, chief United States economist at Barclays Capital. “And capital has gotten much cheaper relative to labor.”

Indeed, equipment and software prices have dipped 2.4 percent since the recovery began, thanks largely to foreign manufacturing. Labor costs, on the other hand, have risen 6.7 percent, according to the Labor Department. The rising compensation costs are driven in large part by costlier health care benefits, so those lucky workers who do have jobs do not exactly feel richer.

There’s your choice as a business – lower prices and tax incentives to purchase software and equipment or higher labor costs for workers.  If the machine can do the job, the business doesn’t have to pay healthcare, payroll, payroll taxes, etc.  In fact, the machine gives them a bottom line write off on their tax bill.  It’s a no-brainer.

~McQ

Twitter: @McQandO

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