Free Markets, Free People

Dale Franks

Dale Franks’ QandO posts

Economic Statistics for 16 May 12

The following statistics were released today on the state of the US economy:

The Fed reports industrial production rose 1.1% in April, while capacity utilization increased to 79.2%.

A dip in mortgage rates is causing an increase in refinance applications. MBA reports applications rose 9.2%, with purchases down -2.4%, but refinance applications up 13%.

Housing starts rose 2.6% in April, erasing March’s decline of -2.6%, coming in at a 717,000 annual rate. Building permits were at a 715,000 annual rate.

~
Dale Franks
Google+ Profile
Twitter Feed

Things that should be obvious

Reality is a great test of belief. Sometimes, the things you believe are confirmed by experience. Sometimes they aren’t. And sometimes, reality is so at odds with what people believe, they have to be complete dolts to keep believing it. But, I constantly see people who believe things that simply can’t be true, and it bothers me.

Ultimately, reality tells you whether what you believe is true or not. And if reality conflicts with what you believe, it isn’t reality that’s got it wrong.

The Stimulus Cheerleaders

Basically, it’s the unreconstructed Keynesian crowd. Popularly led by Paul Krugman—who is a Nobel Laureate economist—they continue to argue that the problem with the economy is that the government simply didn’t spend enough to properly stimulate the economy.

There’s so much wrong with that, it’s hard to know where to start.

First, let’s accept that in a range of circumstances, it actually is true that the government can stimulate the economy via deficit spending. As long as there’s not too much debt in the economy as a whole, you can prime the economic pump through deficit spending, especially if you have a fiat currency. We’ve done it lots of times since WWII.

So, up to a point, even if you have a credit bubble that collapses, you can re-inflate it by essentially transferring that debt to the Government via deficit spending.

Up to a point.

As I’ve mentioned previously, the newest ECB research indicates that, in developed economies, once you reach a government debt load of about 100% GDP, it begins to drag on the economy, reducing economic growth by about 1% annually. So, what should be 3% annual GDP growth becomes 2%. And as the debt gets bigger, the drag gets bigger, faster.

Now, ever since Reagan and Congress began serious, constant deficit spending in the 80s, there have been worries that the government debt would begin to crown out private markets, and slow the economy. But it never happened.

Well, until now, as we crossed that 1:1 GDP to debt ratio.

Moreover, the idea that we haven’t spent enough to stimulate the economy is simply farcical. In 2008, the total national debt was less than $10 trillion. Now it’s over $16 trillion. So no matter whether or not we spent X amount of money marked "stimulus", we’ve spent so much money that we’ve added more than $6 Trillion in debt in just 4 years. That’s a lot of stimulus.

Arguing that we needed to spend more is…counterintuitive. If $6+ trillion won’t do it, then it probably can’t be done.

Besides, we already learned there was a fundamental problem with Keynesian economics when we had stagflation in the ’70s, which was supposedly impossible.

The Greeks

Here’s the thing about looting the system. Once you’ve looted it…it’s been looted. The Greeks seem utterly incapable of understanding that the system can’t continue to dole out benefits once you’ve looted it. It’s not the Germans that are making life difficult for the Greeks, by refusing to give them more money. It’s the Greeks that have made life difficult for themselves by spending themselves into a 1.28:1 Debt to GDP ratio.

Austerity, of course, isn’t pleasant—at least not the way they’ve implemented it. What they needed was public sector austerity, i.e., spending cuts, not private sector austerity, i.e., tax increases. Instead, they got both. What they needed were massive spending cuts, and debt repayment.

But, of course, in a country where practically every cop, teacher, and fireman is a unionized employee of the state, and half of the private citizens get some sort of cushy government benefit payment, much public sector austerity was a political non-starter. So they gave themselves a little public austerity and a lot of private austerity…and the economy collapsed. I mean, no matter what they did, they were in for a tough time, but they chose the most destructive path possible, then blamed it on the Germans.

The thing is, the Germans are historically…impatient with foreigners that they find troublesome. But the Greeks have decided that, having looted their economy completely, it’s the Germans’ fault somehow. The Greek position is, "We want to stay in the euro without worrying about our deficits, borrow money from Germany, never pay it back, and tell anyone who questions this to go screw."

The Germans, as are their wont, are unamused.

Californians

The list of odd things Californians believe that are directly contradicted by observable reality is, of course, far to long to be described here. A representative sample, however, includes:

  • Maintaining a permanent class of illegal immigrants in modern-day helotage will not reduce employment among the minority citizenry. Giving them full access to state benefits and education will not strain the schools, medical system, or state budget.
  • California must have the strictest environmental, tax, and employment regulation possible. This will not result slower economic growth, or a business exodus to another state. Similarly, stringent environmental regulation for the benefit of small fish or birds, and significantly reducing the water available for irrigation, will have no effect on farming in the central valley, and, hence, agricultural prices paid by consumers.
  • It is completely possible to allow state employees to retire as young as 50, with an annual pension payment 85% of their highest salary, and fully meet our pension obligations, because the Dow will be at 24,000 by 2009, and 24,000,000 by 2099, thus making the latest round of pension increases perfectly sustainable through investment.
  • If we’re taxing California workers 10% of their income, and we have a $16 billion budget deficit, the problem is that we obviously aren’t taxing enough. We should, therefore, tax higher income earners much more, because they can never leave California and move to Arizona. Or Texas.

California is just Greece with movie stars.

Conclusion

I could go on and on, but, you probably get the point.

The problem with reality is that it doesn’t care what you believe. It just is. The longer you ignore it, the more forceful it is when it re-asserts itself. But if I could point to one thing as the worst modern problem we have today, it would be an absolute refusal to acknowledge reality, accompanied by a steadfast refusal to recognize any of the warning signals it obligingly gives before its assertion becomes horrific, rather than merely unpleasant.

If you make the decision to ride this thing down in flames, reality will be perfectly happy to let you do it.

~
Dale Franks
Google+ Profile
Twitter Feed

Economic Statistics for 15 May 12

The week’s economic calendar kicks off today, which also brings us the largest crop of the week’s releases.

ICSC-Goldman reports mixed retail sales, with a weekly sales decrease of -0.8%, but a sharp increase of 4.5% in the year on year rate. Meanwhile, Redbook reports a year on year retail sales increase of 3.7%, the strongest in six weeks.

The Consumer Price Index was unchanged for April, as energy prices declined. Ex-food and energy, the core rate of inflation rose 0.2%.

The government’s report of retail sales shows a 0.1% sales increase in April. The same rate holds ex-autos and ex-autos and gas.

The New York Fed reports the Empire State Manufacturing Survey’s index on general business conditions rose more than 10 points to 17.09.

March business inventories rose a bit slower than in February, rising by 0.3%. A rise in sales trimmed the stock-to-sales ratio to 1.27, making March inventories look quite healthy.

The Treasury reports net capital inflows of $36.2 billion in March on foreign purchases of $22.3 billion of US securities and $13.9 billion in sales of foreign securities.

~
Dale Franks
Google+ Profile
Twitter Feed

Observations: The QandO Podcast for 13 May 12

This week, Bruce, Michael and Dale talk about the Mitt Romney “bullying” story, media bias, and how the level of journalism under which the country suffers is a disservice to the voting public.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

Economic Statistics for 10 May 12

The following statistics were released today on the state of the US economy:

April export prices jumped 0.4% for the month, and were up 0.7% over last year. Import prices fell -0.5% for the month, and are up 0.5% for the year.

The international trade deficit widened sharply in March to $–51.8 billion.

Jobless claims held fairly steady at 367,000. Last’s week’s claims were revised upwards slightly to 368,000 from 365,000. The 4-week moving average stands at 370,000.

~
Dale Franks
Google+ Profile
Twitter Feed

Economic Statistics for 8 May 12

The following statistics were released today on the state of the US economy:

The NFIB Small Business Optimism Index jumped two points in April to 94.5, the best reading in a year.

In retail sales, ICSC-Goldman Store Sales fell -0.8% last week, and the year on year sales rate fell to 3.3%. Meanwhile, Redbook is also very soft, with the year on year sales rate falling to 2.6%.

~
Dale Franks
Google+ Profile
Twitter Feed

Observations: The QandO Podcast for 06 May 12

This week, Bruce and Dale talk about what the Trayvon martin case says about the media.

The direct link to the podcast can be found here.

Observations

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

Economic Statistics for 4 May 12

The following statistics were released today on the state of the US economy:

The Monster employment index rose three points in April to 146.

The headline numbers of the Employment Situation were that 120,000 net new jobs were created in April, well below expectations of 165,000 jobs. Added to that weak report were that both weekly hours and hourly wages were unchanged for the month, indicating no serious increase in pressure for hiring or demand for labor. (Well, actually, hourly earnings rose 1¢. Meh.) The unemployment rate, however, declined by 0.1% to 8.1%, which is anything but a good sign. That’s because, in the last month, the labor force again shrank from 154,707,000 in March to 154,365,000 in April, as 342,000 workers left the labor force. Likewise, the labor force participation rate declined to 63.6%, the lowest since December, 1981. Additionally, 141,865,000 people were employed in April, down from 142,034,000 in March, a decline of 169,000 in the number of people employed. So, once again the "decline" in the unemployment rate is nothing more than a decline in the labor force that is faster than the decline in employment. The headline number covers a lot of ugly details in the "A" tables of the report. As always, I’d point out that, if the labor force participation rate were at the historical average of 66.2%, the actual unemployment rate for April would be 11.73%, up from 11.56% in March. Overall, it’s a pretty negative report.

~
Dale Franks
Google+ Profile
Twitter Feed