Free Markets, Free People

Economics

More business busting regulatory abuse by the imperial President

Market?  What market?  We haven’t had a free market for much of anything in at least the last 75 years:

Business groups and congressional Republicans are blasting regulations President Obama will announce Thursday that could extend overtime pay to as many as 10 million workers who are now ineligible for it.

While liberals lauded the plan as putting more cash in the pockets of millions of workers, business groups warned it would damage the economy and Republicans said it was another example of executive overreach.

That’s right friends, now it appears that the Obama administration has decided … that’s right, “decided” … that in addition to the increase in the minimum wage, now it needs to redefine who is eligible for overtime. And, of course, that redefinition is going to negatively impact who?  Businesses.  And if they have to live with the changes, who then will it effect?

Oh, yeah, those that can least afford it.  Why?  Because it will increase the cost of doing business.  And what do businesses do when their costs increase?  Pass it on to the consumer.

Now, I ask, was that so hard to spell out?  No.  And is it hard to understand?  Again, no.

So why is it liberals can’t follow the logic train to its final destination?

Well that’s fairly simple, they don’t think, they emote.  The bureaucrats, who’ve never had to run a business or turn a profit in order to meet a payroll are experts in what others “need”.  And they’re convinced those who are involved in running a business are just greedy.

“What we’re trying to take a look at is how we can make the labor force as fair as possible for all workers and that people get rewarded for a hard day’s work with a fair wage,” Betsey Stevenson, a member of the White House Council of Economic Advisers, told reporters Wednesday.

Right.  Because, you know, the guy who risked everything and has succeeded to the point that he can hire others and thereby give the abysmal unemployment numbers some relief aren’t “fair” – by definition I guess.

“Changing the rules for overtime eligibility will, just like increasing the minimum wage, make employees more expensive and will force employers to look for ways to cover these increased costs,” said Marc Freedman, executive director of labor law policy at the U.S. Chamber of Commerce.

Meanwhile in fantasyland:

Stevenson, however, contended that there would likely be an increase in employment as a result of the change, with companies deciding to hire more employees rather than paying existing workers at a higher rate.

Really?  Or perhaps they’ll hire less and use technology to fill the bill.  Technological answers don’t ask for raises, don’t require health care coverage, don’t need overtime, etc.  In fact, it is likely to lead to less employment and more mechanization.

But we should understand the BIG reason:

Proponents say the regulations are an issue of fairness.

“I think that if you put in a full week’s work and you end up being asked by your employer to work longer hours, you deserve to be paid a little extra,” said Rep. Xavier Becerra (D-Calif.).

Is that right?  Well, frankly, Rep. Becerra, that’s none of your freakin’ business.  But, I assume you can point out the Constitutional basis for your “thought”, right?

Bunch of idiots.  They are bound and determined to destroy the golden goose because they’re are woefully ignorant of the goose’s anatomy and how it works.

~McQ

President’s FY2015 budget more proof that he lives in a fantasy world

If I’m not mistaken, not a single Obama budget (those few he’s submitted) over the years has gotten even one vote when it hit Congress.  And that includes votes from Democrats.

This year is likely to be no exception.

Veronique De Rugy at George Mason Univerity’s Mercatus Center says:

Much of the president’s proposed budget’s rosy projections will require considerable tax financing and political restraint to come to fruition. If revenues are lower than anticipated or spending is not restricted as planned, the ten-year debt picture will look quite different. I have noted before that President Obama’s later mid-session review budget differed considerably from his early budget projections. Early revenue and outlay projections were higher than actual amounts, while deficit spending surged much higher than anticipated from 2010 to 2012. This budget will likely mis-project critical variables as well. The rosiest projections all too often turn out to be the most disappointing.

Talk about an understatement.  And the rosy projection?  Well here it is compared to the CBO projection:

You have to chuckle at a miss that bad. In the outlying years, look at the percent of GDP the CBO projects vs. Obama.  Any guess as to which projection is most likely of the two?

Go back to a key line ins De Rugy’s analysis:

If revenues are lower than anticipated or spending is not restricted as planned, the ten-year debt picture will look quite different.

Point to a moment in recent history where our profligate politicians have actually followed a restrictive spending plan that would have the effect Obama says it will?

Yeah, I can’t point to it either.

Regardless, however, we’re supposed to believe that if the plan is followed as layed out in the Obama budget, we’ll see long term debt reduction.

Unfortunatly the next chart doesn’t at all support that claim:

In every year projected, spendin is greater than revenue.  So what they’re assuming is massive growth in the eoncomy to make the debt they pile up in the later years a smaller percentage of the GDP.

Really?  Taxes are going to go up, government spending will also go up and yet somehow the private economy is going to surge (10 more “recovery summers”, eh?)?  Obama plans spending and taxation as a percentage of GDP that are at or near historic highs, but we’ll see huge economic growth to support that?

Wow, if you’re not flying the red BS flag, you need to take an Econ 101 class.

Yet this is what the President of the United States is presenting as a functional budget for this country 10 years into the future.

Fantasyland.

~McQ

It is official: Welcome to the Obama economy

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.

~McQ

Unemployment the people’s main priority? So let’s hike the minimum wage …

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.

Wonderful.

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.

~McQ

Sometimes I wonder …

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”.

~McQ

Economic Statistics for 19-20 Dec

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.


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Is prosperity about to become a thing of the past?

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.

~McQ

Debt accumulation for the past 2 years higher than GDP

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.”

Ya think?!

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.

~McQ

Economic Statistics for 27 Aug 13

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.

~
Dale Franks
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Stagnant wages, among other things, a result of the economic doldrums

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.

Secondly:

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.

Finally:

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.

~McQ