We’ve been told over the last few years that our economy is in a slump but not to worry. It’s temporary. The administration is on it. It’s going to be fixed.
What, we’ve had 5 recovery summers and are heading into our 6th?
Well, the CBO, that office the administration loves to cite when it suits them, has decided that this economy, the Obama economy, isn’t an outlier and we should get used to it:
The part of the past that you deem most relevant can be critical in determining your outlook for the future. And nowhere is that clearer than in the changing economic forecasts that come out of the Congressional Budget Office.
This year’s short-term and long-term economic forecasts are substantially worse than last year’s, even though the economy performed better than expected in 2013. What changed was that the C.B.O. economists essentially decided that they would no longer treat the recent years of poor economic performance as a sort of outlier. They have seen enough of a slow economy to begin to think that we should get used to sluggishness.
They think that Americans will earn less than they previously expected, that fewer of them will want jobs and that fewer will get them. They think companies will invest less and earn less. The economy, as measured by growth in real gross domestic product, will settle into a prolonged period in which it grows at an average rate of just 2.1 percent. From 2019 through 2024, job growth will average less than 70,000 a month.
So, how does it feel? You’ve lived through the “Golden age” and are now relegated to … this. Slow to non-existent job growth. Regulation out the wazoo. Rising health care costs. Taxes eating into earnings and no end in sight.
This is the economy this administration has helped fashion with an insensitivity to the economy and a policy cluelessness that is second to none. The fact that they’re still pushing a raise in the minimum wage in the face of half a million job losses (conservative estimate) says it all.
You reap what you sow, or don’t sow, in this case. What they didn’t sow was economic policies that would get the economy moving, create jobs and keep us in that Golden age. Instead we got ideology first, regardless of the economic consequences.
And this is the result.
As CBO says, get used to it.
A poll came out the other day saying that the majority of American’s first priority is unemployment. And it should be given the incredible low we’re now suffering in labor force participation.
So what bright idea are Democrats pushing in spite of that? Hey, let’s raise the minimum wage?
Result? Well, even the CBO, the Dems favorite “go to” agency to support their ideas (when it actually agrees, of course), doesn’t see this as a particularly bright idea if they’re concerned about the people’s priority:
Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects.
Notice it says reduce “total employment” by 500,000. It also says it is only a projection and that it could actually be higher than that.
But, but … it will help the poor!
The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.
Or said another way, Democrats are willing to see a half million plus lose their jobs to serve 19% (and that assumes that all of the 19% keep their jobs).
But, but … it will give the poor more to spend!
Moreover, the increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices.
Those are facts, folks. Democrats don’t deal in facts, they deal in emotions … and if they can pass a minimum wage bill, they’ll feel wonderful about themselves. And if they can’t, they’ll blame it all on the mean old Repubicans who want you to be able to keep your job or something radical like that.
I wonder just how intelligent the bulk of Americans are. From a Quinnipiac poll:
American voters support 71 – 27 percent raising the minimum wage. Republican support is 52 – 45 percent. Given several options:
- 33 percent of voters say increase the minimum wage to $10.10 per hour;
- 18 percent say increase it from the current $7.25 per hour to something less than $10.10;
- 18 percent say increase it to more than $10.10 per hour;
- 27 percent say don’t increase the minimum wage.
Raising the minimum wage will lead businesses to cut jobs, voters say 50 – 45 percent, with Republicans seeing job cuts 68 – 29 percent and Democrats saying no 65 – 29 percent. Independent voters expect job cuts 51 – 45 percent.
We’re faced with the lowest job participation numbers in a long, long time, our economy is just starting to recover, a majority of Americans know that raising the minimum wage will lead “business to cut jobs” and yet, the majority also want to raise it anyway (to include 52% of “Republicans”).
It makes you just want to throw up your ands and say “screw it”.
The Bloomberg Consumer Comfort Index moved into the minus 20s for the first time in 10 weeks, at -29.4.
Initial jobless claims rose 11,000 last week, to 379,000. The 4-week moving average rose 14,750 to 343,500. Continuing claims rose 94,000 to 2.884 million. These are all holiday numbers, though, so the week-to-week number is pretty volatile.
The Philadelphia Fed Survey’s General Business Conditions Index rose 0.5 points to 7.0 in December.
Existing home sales fell a sharp -4.3% in November, to a 4.9 million annual rate.
The Conference Board’s index of leading indicators rose 0.8% in November.
The Commerce Department’s final GDP revision for the 3rd Quarter was revised sharply upwards to a 4.1% annual rate. The GDP Price Index remained unrevised at 2.0%. Much of the revision came from increases in personal consumption expenditures, higher exports, and lower imports.
3rd Quarter corporate profits were revised upwards to $1.869 trillion vice the initial estimate of $1.872 trillion.
The Atlanta Fed Business Inflation Expectations Survey was unchanged at 1.9% in December.
The Kansas City Fed Manufacturing Index fell sharply in December to -3 from last month’s 7.
The Fed’s balance sheet rose $14.1 billion last week, with total assets of $$4.008 trillion. Reserve Bank credit increased $53.0 billion.
The Fed reports that M2 Money Supply increased by $17.5 billion last week.
You tell me. Robert Samuelson:
The presumption of strong economic growth supported the spirit and organizational structures of postwar America.
Everyday life was transformed. Credit cards, home equity loans, 30-year mortgages, student loans and long-term auto loans (more than 2 years) became common. In 1955, household debt was 49 percent of Americans’ disposable income; by 2007, it was 137 percent. Government moved from the military-industrial complex to the welfare state. In 1955, defense spending was 62 percent of federal outlays, and spending on “human resources” (the welfare state) was 22 percent. By 2012, the figures were reversed; welfare was 66 percent, defense 19 percent. Medicare, Medicaid, food stamps, Pell grants and Social Security’s disability program are all postwar creations.
Slow economic growth now imperils this postwar order. Credit standards have tightened, and more Americans are leery of borrowing. Government spending — boosted by an aging population eligible for Social Security and Medicare — has outrun our willingness to be taxed. The mismatch is the basic cause of “structural” budget deficits and, by extension, today’s strife over the debt ceiling and the government “shutdown.”
You know, we keep saying this is “unsustainable”, yet we keep refusing to face the problem head on and do anything about it.
This little bit of political theater isn’t going to change that and we all know it. The last paragraph identifies the problem. What apparently isn’t understood, though, is government is not the solution. And big government simply makes the problem worse because it sucks down more and more of the GDP.
The solution is both painful and difficult. And, of course, no one wants to face that fact, certainly not any politician.
So the can gets kicked down the road – as you know it will before any of this ever begins. None of the politicians want to be “the ones” in power when all of this collapses.
For whatever reason, after WWII, we decided to change the purpose of government from “night watchman” to “Santa Claus”. Maybe it was the horror of war. Maybe it was the huge surge in post-war prosperity, but like the story of the goose that laid the golden eggs, we’re about to kill the goose.
So what does that mean?
As economist Stephen D. King writes in his book “When the Money Runs Out: The End of Western Affluence”:
“Our societies are not geared for a world of very low growth. Our attachment to the Enlightenment idea of ongoing progress — a reflection of persistent postwar economic success — has left us with little knowledge or understanding of worlds in which rising prosperity is no longer guaranteed.”
And that fact alone makes any recovery from this mess even less likely. We’ve been able to stumble along and put off the inevitable because we have managed to have “persistent postwar economic success”. But if you look at economic projections for the future, they don’t show the historical growth that America has enjoyed since the ’50s. They show European type “growth”. They show slow growth as the “new normal”. Why?
Lindsey attributes U.S. economic growth to four factors: (a) greater labor-force participation, mainly by women; (b) better-educated workers, as reflected in increased high-school and college graduation rates; (c) more invested capital per worker (that’s machines and computers); and (d) technological and organizational innovation. The trouble, he writes, is that “all growth components have fallen off simultaneously.”
As it seems now, Greece is our future. Nothing, politically, is going to be done about it, despite the current political theater. Neither the politicians nor the citizens want to face reality. And as it is shaping up, it isn’t a matter of “if”, but “when” it all folds in on itself like a wet cardboard box.
I’d like to say this is astonishing, and it would be if a Republican was in the White House because our press would make it so. But with Obama? Meh:
“President Obama said that increasing the debt limit does not increase the debt,” the minority side of the Senate Budget Committee says in a statement. “But when the Treasury department started using so-called extraordinary measures to avoid a breach of the debt ceiling in May, 2011, the debt limit stood at $14,294 billion.
“Today it stands at $16,699 billion, which was reached when Treasury started using extraordinary measures in May of this year. That’s a $2,405 billion increase in 2 years.
“Meanwhile, the economy, as measured by GDP only increased by $1,199 billion between the second quarter of 2011 and the second quarter of this year.
“So the debt increased twice as much as the economy over the last two years, the very definition of unsustainable. The growth of a nation’s debt cannot for long exceed the growth of its economy – which is precisely what is happening now.”
If you need a picture, try this:
And, of course, they’re asking for more. So here’s the question: If we give them more, what will they want next? Answer: Why more, of course.
So at some point, you have to say “no” don’t you?
Well common sense says you do, but apparently for this crowd, that sense isn’t at all that common.
So we do the circus thing, year after year after year and we build charts like this?
Hell, that’s the chart of a 3rd world country.
And the word that should be plaster across the top of it is “unsustainable”.
Meanwhile, in DC, they continue to wrangle over more debt.
The following US economic statistics were announced today:
ICSC-Goldman Store Sales still look weak, with a 0.2% increase for the week, and 1.9% annual increase. Redbook, on the hand, reports a stronger 3.8% year-on-year same-store sales increase.
The S&P/Case-Shiller home price index rose 0.9% in June, a 12.1% increase from last year.
The Conference Board’s consumer confidence index rose 1.2 points to 81.5 in August.
The Richmond Fed Manufacturing Index rose sharply from -11 to 14 in August as business activity picked up in the mid-Atlantic district.
Confidence among institutional investors remains high, though it declined a bit from 107.6 to 105.1 in August.
That’s certainly one of the factors keeping GDP growth low.
Four years into the economic recovery, U.S. workers’ pay still isn’t even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show.
Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation’s economic growth.
Not only that, but unemployment remains historically high years after the “recovery”. The question, however, is why wages are remaining stagnant. The WSJ cites three factors:
Economic growth remains sluggish, advancing at a seasonally adjusted annual pace of less than 2% for three straight quarters—below the prerecession average of 3.5%. That effectively has put a lid on inflation, which has been near or below the 2% level the Federal Reserve considers healthy for the economy. With demand for labor low, prices not rising fast and 11.5 million unemployed searching for work, employers aren’t under pressure to raise wages to retain or attract workers.
Emphasis mine. The Fed is happy with the inflation rate. And the administration, despite numerous claims to be focused like a laser beam on “j-0-b-s” has done little if anything to address unemployment or economic growth. Finally, given the uncertainty that regulation and new laws (such as ObamaCare) bring to the table, employers are even less likely to hire until the regulatory and legal dust settles and they have a much better idea of how both effect their business and industry. It’s not about “pressure”. It’s about a lack of incentive.
Businesses are changing how they manage payrolls. Economists at the Federal Reserve Bank of San Francisco in a recent paper said that, in the past, companies cut wages when the economy struggled and raised them amid expansions. But in the past three recessions since 1986—and especially the 2007-2009 downturn—companies minimized wage cuts and instead let workers go to keep remaining workers happy. As a result, to compensate for the wage cuts that never were made, businesses now may be capping wage growth. “As the economy recovers, pent-up wage cuts will probably continue to slow wage growth long after the unemployment rate has returned to more normal levels,” the researchers said.
Another point to make, again considering the unemployment rate, is that those working are glad to still have a job. And with the economy still struggling it is unlikely that many feel the time right to push for higher wages. In fact, it is a “buyers market” right now when it comes to labor. And it will remain one until we get into much higher growth percentages and the demand for labor begins to outstrip the supply. We’re not even close to that at this point.
Globalization continues to pressure wages. Thanks to new technologies, Americans are increasingly competing with workers world-wide. “We are on a long-term adjustment, as China, in particular, but all developing countries, get their wages closer to ours,” said Richard Freeman, an economist at Harvard University. According to Boston Consulting Group, there will be only a roughly 10% cost difference between the U.S. and China in making products such as machinery, furniture and plastics by 2015.
Technology is also replacing workers in many industries. Automation is especially tough on low skilled workers. But again, given laws like ObamaCare, the incentive at work is to have fewer employees, not more. Businesses will automate where it makes sense and helps make a profit. It is also a means of closing that wage gap mentioned above, so it isn’t a trend that is likely to end anytime soon.
All of those factors and what I’ve mentioned in addition to them combine to make unemployment and wage growth both remain static. There simply aren’t any incentives at the moment to hire more people. Certainly not in GDP growth. Certainly not with the plethora of new regulations and laws.
In fact, as is mentioned in the article, at the moment there are only two paths to higher wages:
The only path to wage gains is through a stronger economy or an increase in demand for specialized skills.
The economy is moribund and has been for quite some time with GDP growth under 2% for the last three quarters.
That narrows the path to wage gains to a single one – developing specialized skills. It isn’t a path open to everyone, unfortunately, for a number of reasons.
So how could government help change all of that? Quite simply by getting out of the way – something it seems completely unable to comprehend or do.
And because of that, it continues to contribute negatively to the economic situation we endure.
Zero Hedge has a very pointed article about Detroit’s decline. In it are listed 25 reasons it’s bankrupt (that, as ZH claims, will leave you shaking your head when you finish). Here are the first 12:
1) At this point, the city of Detroit owes money to more than 100,000 creditors.
2) Detroit is facing $20 billion in debt and unfunded liabilities. That breaks down to more than $25,000 per resident.
3) Back in 1960, the city of Detroit actually had the highest per-capita income in the entire nation.
5) Between December 2000 and December 2010, 48 percent of the manufacturing jobs in the state of Michigan were lost.
6) There are lots of houses available for sale in Detroit right now for $500 or less.
7) At this point, there are approximately 78,000 abandoned homes in the city.
8 ) About one-third of Detroit’s 140 square miles is either vacant or derelict.
I know, you look at that and say, "these have me shaking my head already … there’s more"? Oh, yeah. Read ‘em all. But here’s the important part. It’s not just Detroit:
9) An astounding 47 percent of the residents of the city of Detroit are functionally illiterate.
10) Less than half of the residents of Detroit over the age of 16 are working at this point.
11) If you can believe it, 60 percent of all children in the city of Detroit are living in poverty.
12) Detroit was once the fourth-largest city in the United States, but over the past 60 years the population of Detroit has fallen by 63 percent.
“Oh my”, you’re saying, “I’m already shaking my head. There’s more”? Oh, yeah, much more.
But here’s the important part – a part we’ve been talking about for quite some time”
A while back, Meredith Whitney was highly criticized for predicting that there would be a huge wave of municipal defaults in this country. When it didn’t happen, the critics let her have it mercilessly.
But Meredith Whitney was not wrong.
She was just early.
Detroit is only just the beginning. When the next major financial crisis strikes, we are going to see a wave of municipal bankruptcies unlike anything we have ever seen before.
And of course the biggest debt problem of all in this country is the U.S. government. We are going to pay a great price for piling up nearly 17 trillion dollars of debt and over 200 trillion dollars of unfunded liabilities.
All over the nation, our economic infrastructure is being gutted, debt levels are exploding and poverty is spreading. We are consuming far more wealth than we are producing, and our share of global GDP has been declining dramatically.
We have been living way above our means for so long that we think it is "normal", but an extremely painful "adjustment" is coming and most Americans are not going to know how to handle it.
I agree completely. As I said in my first post about Detroit it is just the dead canary in the debt mine. It was simply the worst off of the bunch. But, remember, we were told this sort of stuff couldn’t happen and to quit worrying about. That debt wasn’t really that important. Well, in a microcosm, Detroit is the end state we can expect for any number of governmental units in this country (and others). It is where everyone is headed, it’s just a matter of the speed in which they get there.
You cannot live as we’ve been living and expect there to be no consequences. Let me modify that. You can “expect” whatever you wish, what’s delivered will be delivered by reality, not your expectations.
Well there are a lot of contributing reasons, but Brad Plumer hits on the major one:
— Detroit is sagging under decades of bad governance. “The city’s operations have become dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption,” Orr wrote in May. “Outdated policies, work practices, procedures and systems must be improved consistent with best practices of 21st-century government.” (Detroit has been a one-party city run by Democrats since 1962.)
Now I didn’t write that or suggest that. In fact, it comes from Ezra Klein’s “Wonk Blog” in the WaPo. Some things just can’t be denied or spun. Detroit is and has been the exemplar of the blue model city for decades. And this is the result.
Of course, Detroit isn’t the only blue city in dire straits. It’s simply the one in the worst shape of all. It has literally imploded. It’s population dropped as people fled the exploding crime and high taxes. 78,000 buildings have been abandoned or have become blighted. Unemployment is rampant. And, uncooperative unions and huge pension debt doomed any recovery.
Over the past few months, Orr has tried to convince the city’s various creditors, including the city’s unions and pension boards, to take far less than they were owed in order to restructure the city’s finances (in some cases, pennies on the dollar). But he was unsuccessful, so now the city is filing for bankruptcy protection.
So now they’re all at the mercy of the bankruptcy court, assuming the Obama Administration’s misnamed “Department of Justice” doesn’t try to take a hand in the restructuring as it did in the auto bankruptcy proceedings.
Looking back at the first cite, Kevyn Orr, the city’s temporary emergency manager makes an interesting point – he claims it is time to move government into the 21st century. Doing so would also include much less power for unions and much less generous payouts for pensions, if a city is to have a chance at fiscal solvency. Not that Detroit is going to get there easily:
“But city retirees, facing the prospect of sharply reduced benefits whether in bankruptcy or under Detroit’s restructuring proposal, think they stand squarely on the moral high ground because despite the poverty of many current and retired members, they have already offered big concessions.”
You can stand on the highest “moral ground” you can find, but reality says if there’s no money, it really doesn’t matter, does it?
That is, of course, unless the fed tries to involve itself in the mess and subsidize pensions and unions – something not at all far fetched.
Detroit is the canary in the coal mine of blue model governance. How many other cities will fold before it is finally kicked to the curb?